Why Review FNPF Act
and Pension Scheme?
THE REASONS
FNPF is undergoing reforms that are in line with
its corporate vision to secure members’ future by
ensuring sustainable returns and delivery of excel-
lent services. The Fund has adopted an integrated
and holistic approach to these reforms that takes
into account all aspect of its business including
business processes and designs, investment, IT
infrastructure and most importantly, its people.
A key component of the reforms is the
review of the FNPF Act and the Pension Scheme
to ensure the delivery of a sustainable, transparent
and fair retirement savings scheme for all mem-
bers.
Both these issues are crucial to the future of
the FNPF given the many challenges imposed by
rapid changes in the global socio-economic and
financial environment since 1966, when FNPF was
established.
These challenges include but are not limited
to, evolving perception pre-retirement benefits,
financial sustainability, investment opportunities and
the pension design.
One thing is certain though– the Fund can-
not continue to operate the way it has in the last
45 years. Thus, in order to ensure a sustainable,
transparent and fair pension system, it is only logi-
cal both the design and its operations are reviewed
together with the necessary legislative amend-
ments to implement effective changes.
Changes are imminent as the Fund needs
to ensure meaningful reform and sound retirement
savings policies that deliver benefits to as many
workers’ as possible — now and into the future.
Short term solutions may look attractive — may
even be popular in some quarters but the Fund
must do what is right for its members in the long
term.
The challenges facing our retirement sav-
ings and pension are not unique to Fiji. In many
countries, reforms in the superannuation industry
are implemented when the problem has become
critical.
For several years now, various consultants
including those from the World Bank and the Inter-
national Monetary Fund have stated the need for
the review of the pension scheme.
In 2008, a Consulting Team from the Singa-
pore Enterprise Cooperation stated that FNPF has
time to make the necessary changes to its pension
system.
An independent evaluation by Mercer in
June 2010 reported that the Fund has in excess of
$55.81m in assets to support its current liabilities
to members and pensioners but it is fasting declin-
ing given the generous and unsustainable rates at
which savings are converted to pension income.
As such, FNPF is undertaking these reforms from a
relatively stronger financial position.
IT’S ABOUT RETIREMENT
The proposed changes will refocus the Fund to
its core objective – “providing financial security to
its members during retirement”. This will mean the
preservation and growth of member’s retirement
savings through:
i) The establishment of two accounts agencies to improve monitoring and
for each FNPF member. compliance.
Preserved account: A certain percentage d) Provide an amnesty period to encourage
of member’s contribution will be fully preserved until employers to comply.
retirement and will grow by compound interest.
The account will not be available for early access IT’S STILL ABOUT
to benefits. Keeping it growing is the only way to RETIREMENT
ensure that Fiji’s retirement savings scheme truly

“
meets the promise of meaningful financial security
in retirement. Making sure that your
General Account: Will hold the remaining saving for retirement “
balance of the member’s contribution. Members gives you a secure
will be able to withdraw from this account in similar
retirement income
circumstances to the current benefit scheme.
A member will only access the Preserved Account
The only retirement product that is offered by FNPF
for the purchase of their first home. Each member is the Life Pension (sole and joint).
may exercise this early access only once. Life pension means that a member must
Thereafter 100% of future contributions willput aside a portion of his savings for pension when
be directed to the Preserved Account to repay the he exercises his retirement options with the Fund.
drawdown. Upon full repayment, future contribu- The monies set aside for pension is then
tions will then again be allocated to Preserved and calculated based on a rate that will determine her/
General Account. his monthly pension. This amount will be paid by
ii) Open voluntary contributions to all the Fund until the member dies. The problem with
members the past and existing rates applied over the years
Members will be provided with an opportunity to by the Fund is that they were not actuarially-based
increase their retirement savings through paying – it did not take into account demographic chang-
voluntary contributions in excess of the statutory es (life expectancy, gender) and the changes in the
financial/investment market.
requirements, with the payer nominating which ac-
For example, the pension rate of 25 per
count (preserved or general) the excess contribu-
cent offered by the Fund for many years prior to
tion are paid into.
1998 assumed that retiring members live on aver-
age less than 5 years after they retire. This means
iii) Coverage , Collection and
that they would use up all their income in four
Enforcement
years.
Maximize coverage for all Fiji workers, including
Who pays from the 5th Year? Current work-
self-employed, contracted employments and part-
ers have to pay in what is commonly referred to as
time workers by ensuring adequate powers to en-
subsidization.
force compliance by all employers and recoveries
Initially, through direct subsidization until
on behalf of the workers. This will be achieved by:
1998 (through the pension buffer reserve) where
a) the alignment of definitions and exemptions
2 cents of members contribution were credited to
in the FNPF Act with FIRCA.
reserves to support the pension payments.
b) Minimize the number of exemptions such
as age (currently restricted to 16)
c) Implement information sharing with relevant
From 1998, current members have been cross- bers who have worked through their working lives to
subsidizing through lower credit rating to ensure have a secure income in retirement.
adequate reserves for pension payments, are avail- All new pensions will be provided on a sound actu-
able. Put simply, it means that money that could arial basis and will be managed through this sepa-
have been distributed to members as interest rate pension business, to make sure that there is
earned was instead paid to pensioners. no more cross-subsidisation and that the scheme
This is not sustainable and the challenge is - is fair.
how do we meet existing obligations and to imple- The Fund proposes the following changes to
ment a pension scheme that is sustainable and fair, the Retirement products
in the future. 1. Establish the concept of a “ minimum sum”
New Pensioners to be converted from the Preserved
New pensions will be provided on a sound Account into an income stream and the
value be actuarially assessed to ensure that
actuarial basis. This means the adoption of a new
is it is sound
‘pension conversion rate’ that has been actuarially
2. Offer alternative retirement products such as
assessed. This means that the new rate in which
(i) Account based pension and (ii) Term
members balances are converted for their pen-
annuity to provide alternative income
sion payment has been scientifically-tested through
streams to members
proper mathematical assessment.
Existing Pensioners
IMPROVING GOVERNANCE
The Fund will review the current pension obli-
gation by adjusting payment structure that is fair andThe FNPF Act is silent on many aspects of Good
sustainable. The alternatives for adjustments are the Corporate Governance. Over the years, concerns
reduction of the current pension conversion rates were raised on government interference in the op-
and sharing the burden across the member and erations of the Fund.
The challenge of ensuring independence,
pensioner. The Fund will exempt the most vulner-
avoiding of conflicts of interest and duties for ap-
able (in terms of monthly payment values) from the pointees to statutory funds is not confined to Fiji.
reduction. This will ensure the delivery of meaningfulThe demands on Board members’ time are sub-
annual savings for the business and members. stantial, given that some appointees have full-time
jobs or hold demanding government positions.
The Board needs to be expanded, not only
SEPARATION OF BUSINESS to share the workload, but also to engage Board
members with appropriate finance, accounting, risk
Contribution and Pension
management and legal skills and/or other profes-
The Fund, based on expert advice, will separate the sional qualifications to govern FNPF.
pension business from the contributions. This will Board Membership
ensure that the Fund’s obligations to pay pensions The FNPF Act stipulates the appointment of six
are supported by appropriate assets and special re- board members, representing employers, em-
serves in accordance with actuarial advice and pru- ployees and the government by the Minister of
dential oversight by the RBF. Finance. The Act does not address skills require-
ments or experience.
This means that we have the resources —
appropriate and sufficient investments — to meet It is proposed that future Board members
our ongoing obligations to pay all current and future primary fiduciary responsibility is to act first
pensions. and foremost in the best interest of Fund
The objective of the FNPF is to allow mem- members – not representative groups, gov-
ernment or even the wider interests of Fiji.
a) The proposed changes will provide the REPORTING AND
following : SUPERVISION
• Expansion of Board to 7 members
To ensure the continuous monitoring of the sustain-
• Appointment of 1 representative from each
ability of the Fund it is necessary that standards for
of employers groups, trade union and
disclosure and reporting to members be in line with
government.
accepted practices. There needs to be enhanced
• Appointment of 4 independent board
and regular disclosure in annual reports and to
members, one of whom is to be appointed
members.
as chairman. The chairman and deputy
There should be explicit recognition that
chairman to be independent members.
Reserve Bank has the role of prudential supervision
• Specific criteria for appointment to be
of the board and its operation. The principles to
included in the law
guide Reserve Bank supervisory actions must be
• The Board must have an appropriate skills
based on the best interest of members and pru-
mix requirement. There should be an
dent management. Any key supervisory actions will
appropriate mix of legal, financial,
require Reserve Bank approval/actuarial sign off.
investment, risk management and

commercial skills.
• All board members must meet “fit and Some of the critical roles for actuaries include:
• A major role in the transition – restructuring
proper person” and suitability criteria
into 2 or more funds
to be set by the supervisor. The RBF
• Monitoring sustainability of existing products
to apply this test before appointment.
• Evaluating new products
• The criteria that would disqualify an
• Advice in investments
individual from appointment to the
• Financial condition reports to Reserve Bank
governing body should be clearly laid out in
law. There needs to be security of tenure
Some critical roles for auditors include:
such as limited grounds for removal.
• Preparation of audited Financial statements
• The requirement for code of conduct for
• Risk management policies and procedures
board members and board committees to
advice
be clearly laid out in law.
• Valuations in accordance with accounting
• Detailed provisions about conflict of
standards
interests needs to be stated and
There should be a comprehensive set of supervi-
• Mention of the Whistleblower protection.
sory tools and requirements for the Reserve Bank
b) The law will address, directly or possibly to use including:
by reference to trustee laws, the duties and • Prudential rules

obligations of board members with respect • Examinations and on-site inspections

• Strong reporting requirements to Reserve
to acting in the best interest of members.
The law will provide indemnities to board Bank from the Board and from the actuary/
c)
members and FNPF staff who act in auditor

• Powers to give directions to Board
good faith
It may be appropriate to develop guidelines • Statutory management if necessary
d)
on nomination, screening and selection
process to provide greater
transparency and confidence in
appointments made by the Minister of
independent directors.