FNPF – A social security scheme or a cash cow for government?
By Kamal Iyer - political administrator of National Federation Party
Opinion Piece was published in the Fiji Times on:-
Saturday 14 March 2020
When Ambalal Dahyabhai Patel (A D Patel), the founder leader of National Federation Party, moved a motion in the Legislative Council in March 1965 for the establishment of a social security scheme or a provident fund to lift ordinary workers out of poverty, he probably never envisioned that 55 years later, 69% of workers in such a scheme would have savings far below the total overseas per diem rate of the averaged $3,000.00 daily for 4 days ($12,000 for 4 days), of the nation’s Prime Minister.
The fact of the matter is (to borrow one of the phrases of the PM’s right-hand man, the Attorney General), 69% of members of the Fiji National Provident Fund (FNPF) or 303,854 out of the total 441,663 members have balances of less than $10,000 in their Fund Account. On an average, these same workers are paying the PM's entitlement of $12,000 in travel allowances for just 4 days of overseas travel.
Think about that again. A life-time savings of $10,000 to survive on upon retirement versus; the PM's $12,000 on top of his salary for just 4 days of overseas travel. But that's all fair game as far as the current Fiji First government, that shredded your pension contract and forced you via Decree to a pension rate of less than 9% of your savings, is concerned.
If your balance upon retirement is $10,000 and you withdraw the lump-sum, your average spend per month is $833.33 only for a year, and you exhaust your funds for ever. If you choose to go on the pension, you will receive $100 per month as 9% gives you only $75 per month, and the minimum rate stipulated in the FNPF Decree of 2011 is $100.
Who can survive on $100 per month in these times? Try telling that to the current government, which only knows its insatiable hunger for power while imposing suffering and misery on our people.
On Thursday, it was revealed that the sitting of parliament scheduled to begin on Monday will not happen. Oddly, the Parliament proper did not resolve to approve this change of calendar as is the procedural norm. The reason for the change is that the Minister for Economy would announce a supplementary budget on 26th March that Parliament will debate from 6-9 April.
Whether it has been called a mini-budget, or a supplementary budget all of these labels are subjective. It is a Money Bill. This coming supplementary budget is supposedly a contingency measure against the effects of the now pandemic coronavirus or COVID-19 that so far hasn’t touched anyone in Fiji.
But does a supplementary budget make sense, especially when the current financial year will end in exactly three months and 3 weeks’ time if as expected, the budget is passed in parliament on 9th April?
"Supplementary" means completing or enhancing something. So it should mean the allocation of more resources, in addition to what was budgeted for the 2019-20 financial year. That would be welcome news.
But are we naive enough to expect boosts to current budgetary allocations? Under the pretext of "supplementary", allocations are more likely to be slashed. There may be charges to tax policies like increasing VAT, because Fiji has had a cash-strapped patchwork government since the 2018 general elections.
Where does this leave FNPF in this supplementary budget scheme?
At the end of the 2018-19 financial year, Government owed FNPF over $3 billion. At that time it constituted more than half of government’s total debt of $5.6 billion.
Government had parliamentary approval through the passage of the 2019-20 budget to borrow $819 million in the current financial year. This excludes a USD100 million (over $200M) bond, making the total projected debt with the utilisation of the borrowing provision, to over $1.019 billion this financial year alone.
Surely, FNPF would have be the major source of funds domestically. And most surely FNPF’s doors will be knocked on again by this government as the two-men rule bereft of ideas, struggle to effectively govern Fiji, after presiding over a consumption-driven economic growth that has ground to a halt.
Will FNPF continue to be treated like a cash cow? Now, more than ever before, the Fiji First government will be relying on FNPF for loans to meet operational expenditure like salaries of civil servants. In fact, I believe this trend started last year when a massive reduction in revenue collection forced government to hide its tail between its legs, and rely on FNPF borrowing to sustain many expenses.
We are told that government borrowing is a prudent investment of FNPF finances, generating return for members. Be that as it may, it has not resulted in any of these investments "giving a leg up" (again to borrow this government’s jargon) to the balances of over 303,000 FNPF members, or boosting pension rates.
Every government has borrowed from FNPF. The Fiji First government is no exception. But the Fiji First government has left past governments for dead when it comes to scaling up our debt levels in an unprecedented fashion.
From a pre-coup debt level of $2.863 billion accumulated by all former governments for 36 years as an Independent Fiji, to the projected debt level of $6.18 billion at the end of July this year, the current government has torn to shreds past debt figures, by borrowing over $3.3 billion in 13 years!
More than 50% of the total debt up to July 2019 and more than likely by July this year, will be carried by FNPF. The people's money.
The government has treated FNPF like a cash and this arrangement will continue because Government has 100% control of the funds of an organisation that is 100% owned by the workers of Fiji. The workers have zero influence or control of their own hard-earned savings.
This change in the governance structure of FNPF was effected through the imposition of a Decree promulgated on 25th November, 2011. Before then, the FNPF had equal representation of Workers, Employers and Government with two each directors including mostly the permanent secretary for preferably either Finance or Public Service Commission being the Chair.
Worse still, the pension rate of 25% for long-time former members was cruelly slashed over dubious claims that they were being rewarded more than what their actual savings actually were. The average pension rate of 15% was slashed to almost 9%, with yet another alarmist claim that the Fund would be totally non-viable in the 2050’s.
Pensioners and retirees who used to receive reasonable pensions wanted to challenge the draconian provisions in the High Court, but the case was thrown out because the Decree strictly prohibited any legal action.
A Fund established to be a social security scheme has failed to uphold the principal objective of being the bedrock of financial support for a pensioner in his or her twilight years.
What the Bainimarama led military government did to the FNPF governance and pensioners in November 2011, was similar to the overthrow at gunpoint of a democratically elected government.
Backed by the barrel of a gun, the military government, through the promulgation of a decree appointed President, overthrew the democratic governance of FNPF, seized total control of the Fund and reduced to ashes, the aspirations and plans of many retirees and pensioners.
All in the name of good governance and protecting the members’ interests. Wow! Truly a sick joke!
Fast forward to 2020, and one will see that FNPF has well and truly become a corporate giant instead of a social security scheme. FNPF’s 2019 Annual Report focuses more on corporate governance and investment, instead of the welfare of its members!
Apart from what FNPF claims as sound returns from lending to government, FNPF enjoys highly favourable returns from its investment. Are the profits in their entirety going to the members as dividends, through annual interest rates?
The interest rates paid annually may sound nice, but it does not change the plight of pensioners as well as that of over 303,000 or 69% of FNPF members with balances of less than $10,000.
Despite the phenomenal increase in return from investments over the last 10 years, pension rates continue to be as low as $100 per month. The average pension rate has been around 9%, plummeting from 15%.
There are no impactful changes to social security benefits, but government borrowing keeps rising!
The number of retiring members each year opting for pensions keeps dwindling to a minuscule percentage, with over 95% of members opting to withdraw their savings lump-sum upon retirement at the age of 55 years.
The governance of the FNPF continues to be authoritarian with exclusive government control of a Fund owned 100% by the workers of Fiji.
So much so that for almost two months now, the new FNPF Chairman is also Chairing the Energy Fiji Limited Board - an organisation that recently sold 20% of its shares to FNPF, at a cost of $80 million as revealed to Parliament last month by the Attorney General.
Government will tell you it is not a conflict of interest – it is not nepotism – it is perfectly legal – and it is under the OMRS (Open Merit Recruitment System).
Surely, there are more than enough qualified people in Fiji to take over the chairmanship or become board members of Fiji’s largest financial institution, rather than some people who hold more than one chairmanship or directorship of statutory boards.
Core objective laid to rest
When moving the Bill to establish FNPF 55 years ago in 1965, A D Patel said: -
“We owe it to a large and growing body of wage earning workers and their families and children to initiate action which will give them some hope of security in their old age and in times of social difficulty”.
“For many years I have been deeply conscious of the need to ease the burden of old age in Fiji. The provision of adequate security for workers and their families during the sunset (retirement) of the breadwinner’s life is a matter of special concern to me”.
“I have seen enough of the poverty, the heart-burn and worry which can afflict old age in Fiji, for me to press the urgency of the need for the introduction of a scheme for cushioning the hardship which old age and insecurity can bring”.
Those noble objectives were buried by the military regime in November 2011.
One thing that cannot be buried is this. The current governance and modus operandi of FNPF, coupled with wheezing economic climate will only heighten that FNPF will be an over-milked cash cow for the current Fiji First cash-strapped patchwork government that lost its economic bearings while strategising on low-hanging fruits for 48 hours on Level 9 at Suvavou House in December 2018.