Peter Ponders the Fiji National Provident Fund Reforms

Would readers please direct all their FNPF comments to this posting.
A reader “Peter” made these comments. I thought they’d get lost in the NEWS posting so I’m publishing them as a separate item and invite comment. I have added, at the end, correspondence between Ross MacDonald who opposes the proposed changes and Ajith Kodagoda of the FNPF.  Readers should note that this blog has no position on the proposed changes but it is concerned that they are not used by anti-Government forces for their own political purposes.  I suspect that had history been otherwise and the SDL were still in power, they would have been facing  similar hard decisions today.

See also this letter in the Fiji Sun.  I'm told there's also one by Rick Rickman. Would someone please sent it to me. I can't find it on Fiji Sun on line.


Peter: One wonders whether the anti-government movement may live to regret using the proposed FNPF Reform process as a convenient means to attack and whip up negative sentiment against the current government.

This is a critical long term reform for the future of Fiji. If the current authorities do not undertake it a future government will certainly have to. And just like the current situation that government will likely feel the backlash from the then opposition party which will also doubtless exploit, for their own political purposes, the natural concern and fears that arise when changes are proposed to a person’s future pension. All this is so counter-productive and against the long term national interest.
Making reforms is difficult. And with almost any reform there are winners and losers. But sadly much of this anti-FNPF media/blogging is superficial.. FNPF members need to just think for themselves a little.
While I am not intimately familiar with the current FNPF situation and am not in Fiji I do understand the principles and parameters of pension funds so let me make the following observations:-
1. People seem to be confusing FNPF with a government funded social security system. The principle people appear to be ignoring is that FNPF simply cannot payout more than it receives in contributions and investment earnings. It is not subsidised by the Government as pensions are in other nations. Yes it’s not good if a person’s pension is below the poverty line but what is FNPF supposed to do? Money doesn’t grow on trees.
2. Peoples’ pockets are not “being plundered”. There is no “scam”. The IMF, World Bank, ILO etc have for years being asking for this FNPF structural problem of an overgenerous pension scheme to be addressed. Otherwise FNPF will simply become insolvent…Maybe not for 20 years or so but it will inevitably come. The mathematics don’t lie. The longer the reforms are postponed the more difficult and harsher they will eventually have to be.
3. The simple overarching problem is the ‘pension factor’ of 15%. This applies when a retiree opts to take a life-time pension rather than a lump sum on retirement. This means that after 6.6 years (100/15) a pension recipient has exhausted their own account balance and will thereafter be receiving a pension effectively provided by others. This is the systemic problem that FNPF management is trying to address with these reforms. The pension factors should never have been set so high.
4. Yes you can argue about using pension buffer reserves, different assumptions about the balance between retirees who take a lump sum and pension, different life expectancy rates and whether or not existing pensions should be grandfathered under the old rules. But you still cannot escape the essential issue of 3 above. Eventually you have a solvency problem.. It simply will not go away without reducing the pension factor.
5. Yes this will result in a lower pension than under the existing formula. But what is FNPF supposed to do? It can’t pay out monies it does not have! Pensioners can’t expect to get back more than they put in plus their investment earnings. Retirees who elect to take a lump sum rather than a pension don’t expect more than their account balance so why should pensioners who take the annual payment option receive more?
6. It wouldn’t make a bit of difference if the employer or employee contributions were increased as some advocate as a solution. In fact this would make the situation even worse. Why? – Because it would make the individual member’s balance higher when they retire and commence their pension. So after the 6.6 years the required subsidy amount by others would be even greater.

7. Similarly even if there had been no investment write-offs re Natadola, Momi etc these reforms would still be necessary. In fact the investment earnings profile of the Fund is almost irrelevant. Why? Well let’s say there had been no write-downs and members’ accounts had been credited last year with say 7% instead of 5%. This would make their balance on retirement higher and as with 6 above simply make the situation worse.
8.. I suspect many of these points would have been made in the FNPF presentations that overseas blogger readers would not have the benefit of seeing.
9. People who don’t like the current government seem to be expressing their anger by directing it at FNPF Board/Management. And getting quite nasty and personal. This is unfair as they appear to be doing their best in trying circumstances. No doubt FNPF would have well anticipated that these changes would be unpopular. But management has fronted meetings because they are doing it for the long term benefit of the Fund. If they didn’t do anything they would be rightly criticised.

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From: Ross McDonald [mailto:Ross.Mcdonald@creditcorp.com.fj]
Sent: Friday, June 24, 2011 2:52 PM
To: Malcolm Harrison; Matthew Wilson; jamesraman@connect.com.fj; Daryl Tarte; Talei Burness; Arthur Smith; tonyphilp@connect.com.fj; Robin Storck; fong_e@usp.ac.fj; Philip Mow; Sin Joan Yee; sso@connect.com.fj; attar@connect.com.fj; Rick Rickman; sampillay.rcci@gmail.com; Malcolm Paterson; waden.narsey@gmail.com; tupeni.baba@gmail.com
Subject: FW: Proposed Changes to FNPF
The following   is an email I have sent to FNP this morning that raises further questions concerning the proposed changes to FNPF.
Please feel free to pass this on to others who have an interest in preserving the rights of pensioners and members of FNPF.
Regards
Ross McDonald

---

Apologies for the formatting. 

From: Ross McDonald

Sent: Saturday, 25 June 2011 9:26 AM

To: 'cjpatel@connect.com.fj'; 'Tom Ricketts'; ; ; ; 'AisakeT@fnpf.com.fj'

Subject: Proposed Changes to FNPF

Dear Mr Kodagoda

 I refer to my email below of 17 June 2011 to which I have not received  a

 reply and to your email of 16 June 2011.  In addition to the points raised in  my email of 17 June 2011 you have also not

 responded in detail to the points I raised in my earlier email of 15 June 2011

 also listed below, or to my two letters of  9 and 14 June 2011.

 I would be grateful for your response on all the points raised in these emails

 and letters.  Merely to say we are "shooting the messenger" is a lame excuse

 and is just  not good enough.



 I am concerned at your lack of response as I would assume that you and your

 Board would wish to be totally transparent in all  comments to members and

 pensioners on the issues surrounding your intention to change the pension

 provisions of the funds. After all it is our fund and our pensions that are at

 risk, thus we have a right to know what is going to happen and what the

 thinking is. Our future welfare is at stake and we need to know.



 Unfortunately, based on your lack of response to specific questions I have

 raised in my letter and emails to you, and also judging from your similar lack

 of reply to questions raised by other letter writers in the media, and from

 questions raised at the public meetings, you and your Board are being less

 than transparent, and are perhaps guilty of mis-information.  This raises the

 obvious question, what is going on at FNPF, what is your Board hiding?



 Mercers Actuarial Report


 There are other questions I wish to raise concerning the Mercer

 actuarial report. As you have not released this for scrutiny and comment to

 back your public announcements it becomes open to conjecture what Mercers have

 included.  The points I have are simple and you should be able to readily

 answer.



 At the public meetings it has been stated FNPF has an actuarial surplus.  From

 the comment made by the speaker it appeared this is a surplus before any

 changes are made to the pension provisions etc. How then do the following

 points fit into the actuarial calculation:



 * By reducing all existing pensions down to the suggested 9% presumably this

 actuarial surplus has increased as future pension liabilities have reduced.

 * By reducing all future pensions down to the suggested 9%, presumably this

 actuarial surplus has increased further as again future pension liabilities

 have reduced.

 * By splitting future pension entitlements on the ratio of 70/30 with 70% of a

 members deposit being applied towards their pension, the actuarial surplus

 will again increase as future pension liabilities have been further reduced.

 * Have Mercers taken up an allowance for the future increase in the value of

 the  Natadola property which your management, and others like myself say will

 increase substantially in value, given time for the property to be fully

 developed and land sales proceed ( at least I think we agree on something ), and so

 this would increase the actuarial surplus



 Given the above it would appear these points  should have increased the

 actuarial surplus.



 However from comments made by FNPF management at the public meetings it

 appears Mercers have used Australian life expectancy tables rather than those

 for Fiji, thus giving longer life expectancy to Fiji pensioners and members

 when in fact it is less, thus increasing the liability for pensions, and so

 reducing the actuarial surplus.



 What interest rate have Mercers assumed  for members funds. Depending on their

 estimate of future interest payments to members the actuarial surplus may be

 more or less.  Who knows, certainly we pensioners and members do not know,

 because you have not told us?



 One has to ask what the actuarial surplus really is? Is the actuarial surplus

 that was  announced,  after all these adjustments, or before the proposed

 pension changes?  In any case it would seem that the Mercer Actuarial Report

 is seriously flawed if in fact they have used Australian tables. Can you

 please clarify.



 As you can see from these questions you have raised uncertainty and confusion

 because you have not been transparent and released the Mercer report.



 The other major issue with the Mercer Report is that it appears they may have

 recommended that changes to pensions should be retrospective, which of course

 means FNPF breaking  the contracts it has with us. If this is so, it is very

 strange that a professional group such as Mercers would make such a

 recommendation, that only leads to further questioning the integrity of their

 report.



 As you and your Board will be aware it is generally accepted in common law

 that laws are never made to be retrospectively applied.  How then can you

 justify a reduction in pensions.



 These questions are based on the sketchy information you have made available.

 Releasing the Mercer report and full information on the financial standing of

 FNPF, and being completely transparent  would avoid  speculation and questions

 such as this, as we would know just what the Mercer Report  includes and what the financial standing of FNPF is!



 A Basic Point of Clarification


 From the comments being made by FNPF management they are acting as though they

 have discovered a great unknown truth in announcing that FNPF pension rates

 need to be reduced.  Let us be very clear that it was known right from the

 start that pension rates would have to be reduced from the initial rate of 25%

 as this was known to be unsustainable.  The Blaxland review  was the first

 stage in this process and had that been followed by FNPF we would not be having

 these discussions.



 Blaxland provided for a further review after fifteen years that would have

 been about 2013, but unfortunately all of his recommendations, including this

 were not followed.



 A further review is necessary but not the draconian solution that FNPF is

 suggesting.



 Building Loans

 Since discussion of the proposed changes to the pension scheme have commenced

 there has been some public comment concerning serious issues with the funding

 of a major building loan and the consequences of this.



 It would be useful if FNPF made a definitive public statement concerning its financing of buildings

 so that members and pensioners are aware of any difficulties and the impact of

 these.  This would avoid speculation and rumour in the public arena.



 This also begs the question, what other disasters are there at FNPF that have

 not been disclosed by you and your Board?



 Fiji Times Report


 My two letters and emails to you were partially reproduced in the Fiji Times

 on Saturday 18 June 2011. I understand several important paragraphs were

 excluded by the censors, in particular those about pensioners contracts with

 FNPF and the Government guarantee.  As you have not made any attempt to

 comment publicly on these issues, as you could have re-phrased my comments

in a manner acceptable to the censors, we can only assume that you and your Board

 are satisfied with members and pensioners not being fully informed of their

 rights in these matters.



 Impact of Changes on the Economy

 Much has been said about the misery and hardship any reduction in pensions

 will cause. Pensioners have made commitments to banks, lending institutions,

 hire purchase companies, motor dealers and for many other commitments which

 were all based on the premise that their pension was payable for life as

 contracted for.  What are they to do when these institutions demand payment

 and they lose their assets because FNPF has failed them.

Already banks and other lending institutions are saying they will probably no longer accept an

 FNPF pension as a guaranteed source of income which is a direct result of the

 uncertainty and lack of confidence in FNPF that you are creating.



 You need to realize that the reduction in pensions with pensioners then spending

 less is going to be felt across all sectors of an economy that is already

 struggling. This will impact everywhere, in rural areas, in urban areas, in

 big stores, in little stores, in towns and villages, in manufacturing,

 distribution and wholesale industries, all sectors of the transport industry,

 with taxis and mini buses, to name just a few, because pensioners will be

 spending less.  This reduced spending will not just be  for  one year, but

 will go on, year in, year out, because you and your Board are refusing to

 listen.



 The damage you and your board will do to the economy I venture to say will be

 far greater than any natural disaster we have had in Fiji.  The impact of

 natural disasters will pale into insignificance, compared to the untold damage

 you are about to unleash on the economy.  Presumably you and your Board are

 happy to have this on your conscience?



 FNPF Image


 Over the years other pensions schemes in the Pacific used to visit Fiji to

 look at FNPF and the success it had and to use this as a model to measure

 their pension schemes and what could be achieved.  Now with the loss of

 integrity you are bringing to FNPF this will no longer be the case and FNPF

 will be held to ridicule, much the same as the PNG and Vanuatu funds were when

 they founded, all because you and your Board will not listen to the sound

 advice that is being offered.



 Our Contract/Government's Guarantee/Your Responsibility



 I commented in my email of 15 June 2011 concerning the responsibility of you

 and your Board. You and your fellow Board members have an obligation to do

 what is required by the law.  Nothing more,  and nothing less.



 This includes calling  up the Government guarantee and honouring  the

 contracts that  pensioners have with FNPF. If you cannot do what is required

 of you by law,  you should all resign.



 The Honourable Thing to Do


 If you cannot do as I suggest above then you and your Board must honour the

 contracts you have in place for pensions.  This is your obligation at law.

 Call up the government guarantee if necessary.



 You should then go back to the recommendations of the Blaxland report and

 continue the reduction in pensions from 15% down to 10%, reducing by 1% each

 year until it gets to 10%.  FNPF has the financial ability to withstand this.    As recommended by

 Blaxland when the 10% level is reached that is when there should be a further

 review of the pension provisions.  At that point there should be the widest

 consultation possible with pensioners, members, employers, unions and employer

 representatives, academics and any other interested parties so that a

 consensus is achieved on the way forward for FNPF.  FNPF is not going to go

 bust in doing this.

There must be no retrospective adjustment of pensions.`         



 This is the logical way through for FNPF pensioners and members, and not the

 draconian course that you are recommending.



 It is the combination of these recommendations that will enable FNPF to see

 its way clear and avoid the disaster you are about to inflict on pensioners, FNPF members and all of Fiji.



 Summary

You should be aware that my submisions have had the input of a significant number of pensioners who are anxious to hear the Board's response.  It is not as if I am a loan voice!

I also suggest that ignoring my comments and questions confirms the view commonly held by pensoners that, the Board is turning its back on a significant number of fund stakeholders who have played their part in building FNPF to what it is today, and who are now relying on the Board to accept its responsibility and to understand the plight of  pensioners and members should the changes being suggested proceed. You need to understand I am not a loan voice!



 I have copied this email to all directors and FNPF CEO Mr Taito so that they are all aware of the

 content of all my communications with you. They already have copies of my two

 earlier letters and emails.



 I now look forward to your detailed reply to the points I have raised in my

 three emails and two letters.



 Yours sincerely





 RG McDonald

 (Pensioner)





 ________________________________



 From: Ross McDonald

 Sent: Friday, 17 June 2011 4:12 PM

 To: 'cjpatel@connect.com.fj'

 Subject: RE: From Ajith re FNPF



 Dear Mr Kodagoda



 Thank you for responding promptly to my email.  It is appreciated.



 Contrary to what you say there is one solution, which would make all your

 members (and pensioners) happy and comfortable.



 That is call up the Government guarantee to provide funds to pay pensions

 which are payable under the provisions of the Act.    That is what the

 guarantee is there for.



 Why don't you do this?  This would keep all pensioners and members happy.



 Kind regards



 Ross McDonald



 ________________________________



 From: Ajith Kodagoda [mailto:cjpatel@connect.com.fj]

 Sent: Thursday, 16 June 2011 4:33 PM

 To: Ross McDonald

 Cc: Aisake Taito; Tom Ricketts; Taito Waqa; Tevita Korovakadue NLTB; Sashi

 Singh; Jioji Koroi

 Subject: From Ajith re FNPF



 Dear Mr MacDonald,

 Thank you for your views. All this would be taken in to account before a final

 decision is taken. Like I have said many times before to many people , its

 really unfortunate that "the right " decisions were not taken, almost 20 years

 ago, by respective boards, Governments,management,trade unions reps etc, as

 the writing was on the wall for decades. It was basic common sense that the

 pension rates from 25percent was not ever going to be sustainable. If

 decisions and actions were taken at that point in time, those would have been

 much more acceptable. Fiji also has a passion for "shooting the messenger". My

 self,the rest of the board, and management is doing its best , based on expert

 opinion from many parties. Naturally, there is no one solution, which would

 make all our members happy and comfortable. We will continue to do our best

 with what we have, till we are being given the responsibility to manage the

 fund. Should there be a better team, to manage the situation, I have asked the

 Govt, to get them on board and let them manage the fund, the offer is always

 open. Thank you for taking an interest. Regards, Ajith

 Sent via BlackBerry® from Vod