The visiting IMF Mission team’s recommendation to reduce FNPF’s annuity benefits is unfortunate and appears to have been made without a full understanding of all relevant facts.
In its concluding statement, the team recommends that the Fund be made actuarially sound by reducing what it describes as … “the generous rate of conversion of FNPF benefits to annuities”.
To call the current rate of annuity ‘generous’ shows the Mission team’s lack of appreciation of what these so-called “generous” annuities convert into in real terms and whether it is sufficient to support a reasonable living standard for an ordinary worker who has contributed to the fund throughout his/her working life.
The current rate of annuity is 15% of the member’s balance in the Fund on the date of his/her retirement. This is by no means ‘generous’ bearing in mind the very low wage rates paid to about 80% of Fiji’s workforce.
Moreover, almost every member in the lower income group is constrained to make partial withdrawal from the Fund during his/her working life to pay for children’s education, for deposit on housing loans or for medical expenses thus substantially reducing individual account balances.
It should be recalled that the rate of annuity has been gradually reduced over the years from 25% to 15%. Any further reduction will result in severe hardship to those members of the Fund who retire on lower wage rates.
There is no argument against the fact that the Fund must remain actuarially sound. But that must not be ensured at the cost of depriving some 80% of the retirees of a reasonable annuity to provide for basic needs in their twilight years.
What then is the alternative? FLP believes that the rate of current contribution of 8% needs to be reviewed upwards to provide sustainability to the Fund. Indeed, the rate of contribution needs to be generally increased to 12%. The FLP had begun to address this issue when it increased the contribution rate from 7% to 8% during its tenure in government in 1999.
A contribution rate of 12% each (employee/employer) would result in a much more enhanced rate of national savings. The funds thus generated could play an important role in national development, both in the public and private sectors, while ensuring the Fund’s sustainability and a decent pension (annuity) at retirement to those on lower incomes.
One wonders how much in annuity benefits will members of the IMF team collect on retirement considering their hefty salaries, perks etc?
As a final comment, it is strange that the IMF Mission should make no mention of the fact that FNPF’s investments of over $500 million in real estate, resort development and in shares in poorly performing companies is a major cause of its current financial predicament.
Why then penalise the retirees??