In case anyone may want to accuse me of being a political person, let me say that I have never been a member of a political party nor have I attended a political rally or meeting.
The intention of this letter is to correct two FNPF myths (they are really untruths to put it mildly).
The first and main untruth is that return on investments and or interest have been paid or credited to annuitants’ conversion amounts accounted for in the FNPF Annual Reports under the title “Pension Buffer Reserve”.
Not a single cent of return on investment or interest has been credited to the Pension Buffer Reserve (pensioners account). Attached are pages of FNPF Annual Reports from 1975 (commencement date of the pension scheme) to 2010 (Addendum 1 to 18). There is no evidence that return on investments or interest has been credited or paid.
It seems that the FNPF management and Board Members have advised and convinced Government of this untruth resulting in it being incorporated in the Fiji National Provident Fund Transition Decree 2011 (Decree N0. 51).
Section 4 (1) (c) of Decree 51 states: “accordingly, under the current arrangements, the Board’s annuity liability for current annuitants cannot continue to be met from the annuitants’ conversion amounts plus investments returns, and so must be met by applying a proportion of FNPF member contributions to that purpose (including by way of reserving against these liabilities).”
The untruth has been perpetuated by reports in the media quoting Aisake Taito e.g. Fiji Sun article 30 November 2011 page 4 under the title fourth last paragraph of the pension article (Addendum A) states and I quote: “In the current form, the contributions from pensioners on their retirement, as well as interest gained from investments, was far less than what we were giving out to our pensioners each month”.
When the above was revealed to Mr. Taito at the FNPF public meeting in Lautoka on 2nd December 2011, he did not refute the claim nor did he respond to it then or at a later date. Evidence was handed to him but he refused to receive it. The evidence was handed to his assistant sitting at the desk beside the podium.
If FNPF management still insists that returns on investment/interest were made, we ask that FNPF management provide evidence of this.
Calculations (Addendum B) have indicated that unpaid return on investments or interest to 30 June 2010 at the interest rates paid to members each year since 1975 amount to $762 million dollars or 21.5% of FNPF Net Asset value of $3,551m and 80% of General Reserve of $952 million. These calculations have been verified by our unpaid consultants.
FNPF has the capacity to pay existing pensioners.
Shauna Tomkins’ and Geoff Rashbrooke’s article in Fiji Time article dated 17 December 2011 states that “At 30 June 2011, the amount set aside to support future pension payments to all pensioners current at that date was $565m.
Funds available to pay contracted pensioners:
- Unpaid return on investment/interest $762m
- Add Pension Buffer Fund balance as at 30 June 2011 $ 84m
- Total owing to pensioners $846m
- Deduct transfer from General Reserve on 30 June 2011 $ 23m
- Funds available to pay contracted pensioners $823m
Deduct amount required to pay future pension payments to all contracted pensioners as per Tomkins/Rashbrooke $565m
Excess funds from pensioners available for current members $258m
Messrs Tomkins and Rashbrooke state that approximately $310m would be used to refund pensioners and $100m for top up payments; a total of $410m. This means that FNPF will misappropriate $413m ($823 minus $410) of pensioners’ money to correct its solvency requirements or some other purpose.
The second untruth disseminated by FNPF management and its paid consultants is that current members are subsidizing pensioners. The above calculations indicate that pensioners do not need to:
- be subsidized by current members and
- take a reduction in their pensions and
- have their pension payments topped up.
Here are examples of these untruths:
- Quotes from Shauna Tomkins’ and Geoff Rashbrooke’s article in Fiji Time article dated 17 December 2011:
“……..This has not been the case for 11,000 pensioners whose pensions are not self funding but rely on around $30m every year to be diverted from crediting members to paying pensioners”. Not true.
- Extract from FijiSun article dated 30 November 2011: “
- “Mr. Taito said each year $27 million paid to pensioners came from contributions by more than 300,000 members who were yet to retire”. Not true.
- It is believed that the subsidy that would have been required from member contributions to meet the generous pensions would have risen to $40m yearly by 2020. Not true.
- It seems that Government has trusted FNPF management and has incorporated this untruth in the Fiji National Provident Fund Transition Decree 2011 (Decree N0. 51).
Section 4 (1) (c) and I quote : “………….and so must be met by applying a proportion of FNPF member contributions to that purpose including by way of reserving against liabilities” . Not true.
Most pensioners are aware that pension rates for members opting for future pensions need to be reduced.
While FNPF Management and Messrs Tomkins and Rashbrooke have alluded to World Bank, ILO and Consultant’s reports recommending reduction of pension rates and using these as basis for reducing pension rates for contracted pensioners. Again, we challenge FNPF Management and Messrs Tomkins and Rashbrooke to produce evidence from reports published by these organizations. A section of the ILO Actuarial Valuation Report on FNPF as at 30 June 2002 is reproduced below:
Much has been said about sustainability by FNPF management, Board members and their consultants but the aforesaid reports (World Bank, ILO and consultants) refer to long term sustainability. FNPF presently has the reserves, assets and capacity to meet its responsibility to contract pensioners.
- Neither return on investment nor interest was paid or credited to pensioners’ funds (Pension Buffer Reserve).
- Pensioners are owed $823m from which future pensions of $565m can be paid after which a surplus of $258m would be available for members.
- There is no need for any reduction in contracted pension payments and hence no need for top up payments.
- Pension payments are not subsidized by 300,000 or so current members.
Considering the premise on which the Decree 51 was constructed being flawed and not true, Government should reconsider FNPF Board recommendation to reduce pension payments to contracted pensioners.