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Professor Wadan Narsey’s FNPF articles on Pacific Scoop
02 Tuesday Aug 2011
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Fiji Pensioners
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02 Tuesday Aug 2011
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To read the article in full click the following Link:
Peter said:
One can only wonder if Prof Narsey or any of his immediate family is the current recipient of an FNPF pension?
At least Ross McDonald discloses that he is one of those who has received back from FNPF many times what he has put in.
And therefore he makes readers aware of his personal financial interest in maintaining the current system (which will require future generations of FNPF contributors to subsidise his current lifestyle and therefore receive a lower pension than otherwise.).
Prof Narsey can carry on about “breach of contract” and “human rights” but even basic research will show that world-wide governments, democratic or otherwise, are having to reduce defined benefit pensions like FNPF’s because money simply does not grow on trees. Yes it hurts, no one likes it but responsible management has to consider the future for everyone.
To keep General Motors and Chrysler alive, pension cuts were made for workers there for the benefit of the majority and their children. Governments had to walk away from guarantees to pensioners. See…
http://www.wsws.org/articles/2009/apr2009/onta-a10.shtml
The world is littered with similar examples of hard decision making by Governments and companies which resulted in some people suffering. But it has/had to be done for the benefit of future pension recipients. This is all FNPF management is trying to do. It is not rocket science…you cannot take out more than you contribute plus investment earnings!
FNPF is not a social security system it’s a pension fund!
If this Government does not restructure the FNPF system the next surely will have to.
Son of Fiji said:
@ Peter…
“…which will require future generations of FNPF contributors to subsidise his current lifestyle and therefore receive a lower pension than otherwise.”
You make a classic smoke & mirror argument, because the reality is on retirement, the current contributors will receive whatever pension they are entitled to… and one has to argue that the whole point of the FNPF’s exercise is to give these contributors a lower pension anyway.
“..money simply does not grow on trees.”
No, it certainly does not… however, if you are the Federal Reserve, it can be conjured up out of thin air. Yes, I digress. But, let’s return to the whole point here, which is 60% of the contributions of all the FNPF members past & present is now tied up in government debt at rates essentially below market value. Money may not grow on trees, but it can certainly be seen as easy pickings for successive governments. It shouldn’t take any nous to realise that the burden of the 1200 odd pensioners who have outlived their usefulness, are but a mere sparrow fart compared to the bad smell emanating from the dead elephant in the room. If the govt. debt had been lent out at a single percentage point more than they have been, this “cleanup” of FNPF would not be taking place.
“..Governments had to walk away from guarantees to pensioners.”
Your examples are of Pension schemes provided for by companies… which of late have under-funded their pension obligations to push the burden onto state governments. Those are not the same as how the FNPF is structured. Furthermore, the problems that the developed countries are seeing in relation to their pensions is one of population aging – an issue that our young nation will not be seeing for quite some time.
“The world is littered with similar examples of hard decision making by Governments and companies which resulted in some people suffering.”
Sadly true… history has shown that those who suffer are those who can least afford to.
Peter said:
Sadly Son of Fiji it appears you are letting your dislike of the current Government get in the way of a few facts.
1. What evidence have you that FNPF monies are “tied up in government debt at rates essentially below market value.”? What is your source for this?
May I respectfully suggest you just go back through RBF tender announcements on their website and it is not difficult to see that FNPF actually invested in long term FDL Govt bonds at rates up to 13%! Look for example at Dec 2009 at 11.75% for 20 years. It’s a pity FNPF did not do more of this rather than lend re Momi etc.
On the other side of the coin what is the market rate you are referring to anyway? Local banks? Do you have any idea what rates FNPF lends funds to local banks? I bet they wouldn’t be borrowing from FNPF at these sorts of rates?
2. Who would know? Even Prof Narsey conceded in a recent report that “The difference between the average weighted interest rates charged by FNPF to government, and the average weighted commercial bank lending rates has usually been more than 1 percentage point, and often more than 2 percentage points.” MORE not less. And he even conceded he really didn’t know as he went on to say…”Ask the FNPF Board and Management for this information.” There is simply no evidence that FNPF has been lending to Government at less than market rates.
3. Yes the example I gave was of a company scheme guaranteed by a Government. Because many are suggesting that the Fiji Government just subsidise FNPF. But there are dozens of examples of Governments alone walking away from pension liabilities and reducing entitlements. Just check out what’s been happening in France, Greece, Spain etc in recent times. That’s why people are upset over there too. And it’s been going on for years. Nearly every state in the USA has been reducing pensions for teachers, prison workers, police and other public servants. Just a few references below.
http://www.cbsnews.com/stories/2010/09/15/politics/main6868768.shtml
http://helenair.com/news/article_ca072ec2-a538-11e0-95ca-001cc4c03286.html
http://www.wsws.org/articles/2010/may2010/gree-m13.shtml
4. FNPF simply cannot payout more than you put in plus investment earnings! It’s basic mathematics. The ILO, World Bank, IMF etc have been telling FNPF for years that the 15% pension factor is unsustainable. Only an incompetent Board would ignore this.
Indeed I would have thought you would have applauded FNPF apparently responding to submissions and now proposing to allow some pensions not to drop below the poverty line. They must be doing some financial juggling. And as Ross McDonald has pointed out this is not consistent, and is realistically not adopting the basic financial principles they are otherwise espousing.
Please Son of Fiji just ask yourself this question? Should the Fiji pensioners of today be subsidised so that the pensioners of the future get less? Do you wish your national pension fund to end up like Greece and living (paying out) beyond its means? I really don’t think so.
Son of Fiji said:
@ Peter.. ..My dislike of the current government? Please, kindly point out where in my previous post, any such assumption could be made?!
For your benefit, I can tell you that I am a great believer in the current government, and I can certainly appreciate that for the most part they are doing things that are absolutely necessary… and not that it matters, but I can also declare that I am completely independent of the FNPF and its Pension Scheme!
To your points..
1. & 2. Market rates by their definition are not govt. bond rates. The last time I checked, the rates that we ordinary folk are subjected to are at least 2% points more, so I’m not sure if you’ve misread, or deliberately misconstrued Prof. Narsey’s recent report…
3. Again, you seem to have misread, or misunderstood what is happening in regard to those pensions around the world. Those cuts that you talk about are for future pensioners, and NOT current ones, as is being proposed here. That is what makes this all very interesting. Basically FNPF is threatening to ignore a contract. If they do so, and get away with it, then who is to say, any corporation or person in Fiji should not be able to do the same? The reality distortion field generated by FNPF has put the blame on Pensioners who have outlived their 6-year expected life-span as justification to reduce the pension rates for everybody. And please Peter, understand that by FNPF’s actions now, the current contributors are willingly positioning themselves to be the scapegoats of the future, as well as giving FNPF their full blessing to ignore their contractual obligations to provide a set pension rate (whatever that rate is at their retirement) for the rest of their lives.
4. Do I applaud FNPF “apparently” responding to submissions? No, not really. The mere fact that submissions were called for means it is only right that they respond to them… no need to give them praise for that. Do I acknowledge that reform is necessary? Sure I do. But I think what needs to be clarified is what exactly these reforms are, and whether or not they are justified. How can the above (3.) threatened reform possibly be justified merely because of its profound impacts on contractual obligations?!
I can honestly say Peter, standing here from the sidelines as I am, that people who think they are smarter than they actually are, are going to put into action a series of events that will forever stamp their stupidity into the annals of history to the detriment of our nation.
One step forward, two steps back. Sounds like business as usual in this beautiful country of mine.
Peter said:
Yes Son of Fiji you are quite correct the assumption should not have been made that you do not support the current Government.
a) However I note you still provide no evidence to substantiate your previous claim and let me repeat:-
1. What evidence have you that FNPF monies are “tied up in government debt at rates essentially below market value.”? What is your source for this?
Are you seriously suggesting that retail bank rates are ‘market rates’? If this is the case then every government in the world is currently borrowing at less than market rates and always have. Just look at government bond rates in the US, Australia, Europe, NZ, Japan etc., not one borrows at more than consumer rates.
b) If you are not prepared to accept that the FNPF situation is not unique and unfortunately pensions cuts to existing pension recipients has been happening and will happen elsewhere in the world then there is not much I can say.
And not just pensions all sorts of welfare benefits and even public service wages. If there is no money there is no choice. Please just do a bit of googling. Last year in Poland some existing public servant pensions were cut by more than 50%! Look what Portugal has just agreed to do. Even in the USA there are numerous examples where cuts have been made. And even 50% reductions to existing pensioners there have been proposed. Here is a link to an example in the US just a few weeks old…
http://www.presstv.com/usdetail/190732.html
Many, many schemes previously had legislated inflation indexing which is now being removed…all these are examples of breaking the contract as you would call it’. In Fiji no one likes it and there has been similar outcry in many counties like is happening in Fiji. And some governments under pressure even reversed previous cuts to existing pensions, like in Romania.
But to claim that no current pensioners anywhere in the world have had cuts to their existing pensions, and that what FNPF is proposing has no precedent elsewhere, is simply incorrect. Governments walk away from ‘contracts’ all the time. May I suggest you check out what Obama just signed up to this week. Is it good? No. Does it happen? Absolutely. Money just doesn’t grow on trees and reform costs and people unfortunately suffer.
c) Your comment “I think what needs to be clarified is what exactly these reforms are, and whether or not they are justified. “ is a little puzzling. Isn’t it obvious that if a person will exhaust their contributed pension sum after just over 6.years and thereafter will have to live on the contributions of others the scheme is too generous and needs to be reformed? As it stands now FNPF is close to a giant Ponzi scheme. And at the FNPF website is a press release that appears to spell out what is proposed?
d) What actually puzzles me is why FNPF has elected to stay a defined benefit scheme with all the attendant risks about estimating future life expectancies. If FNPF had followed the world trend it would have ditched this system and become an accumulation arrangement. This would have made clear to everyone that you can only get back what you put in plus your investment earnings.
e) I can’t say I follow your comment “they… are going to put into action a series of events that will forever stamp their stupidity into the annals of history to the detriment of our nation.” These reforms have, as Prof Narsey acknowledges, apparently been urged on FNPF for years by the World Bank, IMF, ILO etc. FNPF actually has to be congratulated for taking the bull by the horns in its attempt to do the right thing for the long term good. Despite clearly knowing how unpopular it would be. I suspect most external agencies will applaud it.
f) I repeat the conclusion to my last comments” Please Son of Fiji just ask yourself this question? Should the Fiji pensioners of today be subsidised so that the pensioners of the future get less? Do you wish your national pension fund to end up like Greece and living (paying out) beyond its means
Jon said:
I think I vote for Peter in the above exchange.
What confuses me is that Wadan based most of his original argument on the fact that changing the payment rate would be illegal as the initial rate was signed in a contract. But if this is true wasn’t the change from 25% to 15% illegal also? If they don’t change the rate, it will probably also be illegal when the whole scheme goes bankrupt and the payment goes from 15% to 0%. I bet everyone will be happy with Wadan’s arguments then..
@Jon:
FYI, The facts are that the previous adjustment from 25% to 15% were not applied to existing pensioners because they held and still hold legal and binding contracts. These contacts can only be invalidated by a Decree from the current administration acting on the recommendations of Board Members whose appointment was not in accordance with the current FNPF act. Who will gain the most from the decree?, it is the entity that owes the members two billion dollars, not the members or future pensioners who can only look forward to ever diminishing returns unless the fund is properly restructured from the ground up. Greybeard
Son of Fiji said:
@Peter… your own statement “…every government in the world is currently borrowing at less than market rates and always have..” substantiates “my” claim. You missed the point of my statement though… and I repeat it again for your benefit: “…let’s return to the whole point here, which is 60% of the contributions of all the FNPF members past & present is now tied up in government debt at rates..”
60% of the debt. I’m not entirely sure, but I think that this may be a specified maximum level. It is too clean a figure for it not to be. If it is, then here is what it means for government… as long as the level of assets in FNPF remains the same, they can’t borrow any more from FNPF. If the contributions increase, then the $ value of that 60% also increases. As long as this remains true, government will always be able to borrow more money. It was always known that a review of the pension rate should happen around the 2013 mark, but by its own announcements, we know that the FNPF has enough assets to meet all its obligations up until 2050. Unfortunately, for (any) Government, if no reform at all took place, this would mean that sometime in the near future (perhaps around 2020??) the value of FNPF assets would be decreasing, therefore reducing the $ value of that 60%, which would cut off FNPF as a source of funds to borrow from, and in fact force Government to start paying more than it wishes to. So, as things stand, any reform of FNPF is more for Governments sake than that of the bulk of the contributors right NOW. Think about it. Most of the CONTRIBUTORS right NOW will have already retired, lived out their pensions and died by the time 2050 comes around.
60% of the debt. Now, remember, this money belongs to the members, ie those who contributed to it. Its all theirs as a group. It doesn’t belong to, or come from Government (as the examples which you point out do). It doesn’t belong to the management, or board of FNPF, even though they themselves may have contributed to it individually. Now 60% of this money gets lent out at rates that the group that it belongs to would never hope to get… its market rates for them. But their biggest debtor is always able to print money to pay the debt / decrease the real value of that debt by devaluing currency, as has been done many times. You referred to it as a Ponzi scheme… and you’re right. But as things stand, the real beneficiary in this giant Ponzi scheme is its biggest debtor, not the pensioners. Because we have a young population, the number of contributors and their contributions are on an upward trend for the foreseeable future… which makes this a pretty rewarding scheme for (any) Government, except the only blip that is on the radar now is the new retirement age of 55… which is a hell of a problem to accomodate if these new retirees can be expected to live well into their 70’s. But rather than increase the retirement age again (that would make a few people look silly) the only option is to reduce the pension rate drastically.
b) The FNPF situation… It is not unique if you are speaking in terms of a potential to be unable to meet its obligations, although this is not a situation the FNPF is currently in – according to the FNPF itself. You say “no money, no choice” but the FNPF claim they have enough money till 2050. However, everyone acknowledges (yes, me too) that reviews of its fiscal position and pension rates need to be made at regular intervals. These reviews may well reduce pension rates, as they have in the past. However, there is no need to reduce the rates of those already on a pension, as can be seen in FNPF’s own admission that they have enough to sustain current rates till 2050, as well as clearly stated in the “confidential” FNPF review dated Feb 2011.
c) The presumption that a pensioner uses up all their funds in 6 years is, I feel, ludicrous. The calculation works if you base it purely on reducing 15% from a fixed amount. Seriously though, who in their right mind actually believes that the FNPF puts aside a pensioner’s entitlement into a big non-interest bearing vault, to withdraw 1.25% of the principal every month until its all gone. Of course they don’t do that. All the pensioner’s accumulated funds continue to work for the FNPF and all of its members, through investments and interest. The cashflow from all this, plus contributions is what the FNPF meets its obligations with. Why can’t people understand that?
d) Because it’s too complicated for everybody in general.
e) The applause of external agencies should not be the be all, end all measure of what is the best option suitable for every situation. These same agencies would have given the same measure of applause if the FNPF reduced future pensions to 12%. I hear Iceland is doing alright in its decision to not cave in to the demands of the World Bank and the rest of the bankster financiers, and now 2 years on, more than a few people a seriously thinking this same attitude could fix a few problems elsewhere.
f) I ask you Peter… have you even seen the Greek pension system? How could one possibly compare that joke with the FNPF? The chances of FNPF facing a similar situation in my lifetime (no grey in my beard) are slim to none. Also, please Peter, ask yourself this… after this proposed reform, are the future pensioners (current contributors) going to get less, or not? If they are going to get less, then what exactly is your point?
Anonymous said:
I want to ask Son of Fiji or Peter, why can’t we increase our retirement age to 60 or 65 even (as it used to be in NZ- but now there is no retirement age there) as it may be the best way to deal with this situation since the pension payouts may be deferred then. I am no economist; just a humble lawyer, but from reading around this issue I see many countries are doing just that, not as a way of being less discriminatory (which I think) but even to solve this problem. Just because it will make a few people look silly doesn’t mean we should not do it. Let them look silly; discriminating against older people in the job market is a silly idea in the first place.
Son of Fiji said:
I totally agree… 55 isn’t an “old” age anymore – just ask 55 year old! If FNPF were smart, they’d give people the option… ie. retire at whatever age you want, but the rate of pension you receive is dependent on whatever age you retire at… and you only get the chance to “retire” once.
La Passionara said:
La Passionaria
What truly amazes me is how the idea of ‘de-regulation’ is really ‘re-regulation’ by another name; unlike a ‘rose’ it actually stinks. My question is whether there should be such a condition as ‘retired’. It’s so old-fashioned. Why would any Provident Fund worry about how much money goes into the Fund from workers and employers in the long term- since it’s money, honey. We should let people work until they are ready to go- the choice is theirs, not some silly constructed idea by Government about when one should ‘retire’. As one who has no hangups about age, I shall retire when I want to; why should any government tell me when I should do so? And people who say older persons should make way for younger people should find a less lazy way to solve their youth unemployment problem.
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