Opinion

Pension Rate FNPF On A Strong, Sound Financial Footing

The Fiji Labour Party has already alluded that they will reintroduce hefty Fiji National Provident Fund pension rates for pensioners, which was reduced to save money for future members. This
20 Jun 2018 12:05
Pension Rate FNPF On A Strong, Sound Financial Footing

The Fiji Labour Party has already alluded that they will reintroduce hefty Fiji National Provident Fund pension rates for pensioners, which was reduced to save money for future members.

This is if they form Government after the 2018 General Election.

SODELPA, through its Member of Parliament Viliame Gavoka has already asked a question in Parliament whether Government would consider reversing the reduced pension rates, indicating that they too support a move like this.

National Federation Party has not publicly talked about what their stand is on this issue.

Any change in FNPF’s pension rates will have a huge impact on its current and future members therefore it is important that members are aware of what these political parties are proposing and the implications of it.

The success of the FNPF reforms has been validated independently by the International Monetary Fund in collaboration with the Financial Sector Assessment Programme, and the Regulator, the Reserve Bank of Fiji.

Last year, FNPF had a net profit increase of $359 million from $331 million in 2016 attributable to better investment returns. 

From this profit, $270 million was credited to members’ accounts in 2017 equivalent to 6.35 per cent in interest paid. 

The Fund has credited over $1 billion  to its members in the last five years.

It has made record contributions of $546 million from $480 million in 2016 and this is the result of better compliance through automation. 

Total assets of the Fund now stands at $5.7 billion, which is more than sufficient to cover its liabilities of $4.8 billion.

The Fund’s net assets is now $836 million.  After applying the solvency requirement of 10 per cent, there is still surplus of $276 million. 

This is a major improvement from the negative $337 million in 2010 prior to the reforms.

The Fund also completed the 250-room Fiji Marriott Resort in Momi Bay, which was opened by the Prime Minister in April. 

Total Government bonds as a per cent of FNPF’s total assets has come down from 56 per cent in 2010 to 41 per cent in 2017.

These results clearly demonstrate that the FNPF is now on a strong and sound financial footing.

But, are they in a position to give pre-reform pension rates?

Maybe not. Reintroducing those outrageous rates will send FNPF back to the days where the Fund was in shambles.

There were firm warnings by the World Bank, IMF, International Labour Organization, and actuary firm Mercer Australia that the Fund was headed for peril. 

In fact, financial and actuarial experts stated that under the old scheme, the Fund would have run out of its reserves by 2023 and would have exhausted all its assets by 2056.

This means that the Fund would not be able to meet its obligations to its members and pay FNPF members when they retired.

This would have been a financial disaster for Fiji.

The annual accounts for 2007 and 2008 were qualified by the auditors because proper books of accounts were not kept.

No solvency requirements and actuarial certification were made. In 2009, $327 million worth of investments were impaired by the Fund.

What it means is that the actual value of investment assets were overstated in the FNPF’s books.

These problems would have created a major financial disaster for the country, if they had continued.

The FijiFirst Government recognised these problems and moved swiftly to introduce the necessary reforms.

What the political parties are not saying is that as part of the reform, all pensioners who were receiving below $100 per month were moved to $100 per month.

Prior to the reforms, some of these members were only receiving $7 per month.

These reforms have been made to protect the long term sustainability of the Fund and to ensure that FNPF remains relevant to its 417,000 members into the future and protect the important role that FNPF plays as a social and economic anchor for Fiji.

And, these pensioners were not left out of  pocket, they had the option of taking a lump sum of money, which some opted to do.

It would be a very bad financial deal to revert to pre-reform pension rates.

Feedback:  jyotip@fijisun.com.fj

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