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“FNPF: the gloss and the truth” (ed in FT 28/12/2019)

28/12/2019

FNPF: the gloss and the truth (ed. in FT 28/12/2019)

Any accountant worth her salt would have been astonished to read a claim by the FNPF Board and management that they had made a record “net profit” of $568 million in the 2019 financial year (Fiji Times supplement,  26 Nov. 2019 and news items).

Such an amazing claim would be acceptable if made by a normal “business activity”, fighting for sales revenues and bearing costs of production and sales, while competing with other entities producing the same or similar goods and services.

FNPF is NOT such a normal business.

FNPF is a monopoly national pension fund which is guaranteed by law to receive as “revenue”, a fixed 18 percent of all wages and salaries paid in Fiji, come what may.

It is deeply regrettable that the FNPF Board (Chairman Ajith Godgoda) and management (CEO Jaiji Koroi) very selectively present masses of  glowing statistics, claiming great improvements in financial performance from 2009 to 2019, while deliberately omitting to present statistics and graphs on the “pension take-up rate” which clearly indicates a failure of the “reform”.

It is deeply regrettable that both Godagoda and Koroi refuse to acknowledge that the 2011 changes had two elements, one of which (the reduction of new pension rates from 16% to 9%) could lawfully be called a “reform” (and I suggest that even that is doubtful given the results) but the second part (the unilateral breaking of legal contracts and reduction of pensions of existing pensioners) was arguably illegal, and can only be called a brazen daylight “theft” by the Government of the day, assisted by the FNPF Board and FNPF management.

The public needs to look beyond the gloss presented by numerous Annual Reports and advertising supplements in the Fiji Times, and understand the truth about this most important financial institution holding the life savings of all wages and salaried employees in Fiji, through seven propositions explained below.

  1. FNPF is not a normal business making “net profits”

  1. The truth about the 2011 “reform”.

  1. Why do the FNPF statistics start from 2009 and not 2006?

  1. Why does FNPF not show statistics on the “pension take-up rate”?

  1. Why is it that FNPF employees like CEO Jaoji Koroi do not see the importance of not taking ownership for unlawful policy decisions by a Government controlled board?

  1. why is it that Fiji’s employees whose life savings are in the FNPF still do not understand that they are the real owners of FNPF and they should be directly electing their own representatives on the FNPF Board which controls their life savings, and which should not be controlled by a government which is the biggest borrower from the FNPF?

  1. Why have the unions totally given up the fight to have their say on the FNPF Board?

  1. FNPF is not a normal business

FNPF was established by an elected Fiji Government, to collect 14% percentage of the wages and salaries bill of all employers with 7% nominally coming from employees and 7% nominally coming from employers. That percentage was then by law increased to 16% and later to the current 18%.

Basic fact: FNPF does not have to fight for revenues in the market like other normal businesses.

Furthermore, as the nation’s wages and salaries bill increases over time (as it usually does), purely as a result of the law, FNPF’s “revenue” also increases directly in proportion, little to do with the effectiveness of the FNPF Board and management.

Three examples should make this abundantly clear.

First, if a Government were to decree by law that all employers must increase their FNPF contributions from 14% (as it once was) to 16% and then again later to 18% (as it now is), FNPF revenues and alleged “net profit” MUST also increase by corresponding amounts, completely automatically.  A future Government might even further increase the stipulated percentage to above 18% and FNPF “revenues” would increase automatically.

Second, if any government gives a large wages and salaries increase to all its civil servants and employees of public enterprises (as they often do just before elections), FNPF revenues (and its alleged “net profit”) rises by the same amount, without any FNPF Board member or CEO lifting a finger.  Similarly, if the private sector wages and salaries are growing healthily because of economic growth.

Third, if a government engages in a massive infrastructure spending program by borrowing huge amounts, the local wages and salaries bill will also rise, and also proportionately increase FNPF revenues, again, automatically.

This will happen automatically in the short term even if the infrastructure spending is excessive and unwise, does not give rise to long term economic growth and burdens all taxpayers (current and future generations) and FNPF Members with a Public Debt which is unsustainable in the long run, while perhaps causing inflation which eats away at all savings in Fiji.

  1. The 2011 Reform and Daylight Robbery

In every capitalist country and economy, the “law of contracts” is at the heart of property law and a smoothly operating capitalist economy, rightly enforced by every government. Anyone having a lawful contract is able to demand that government enforce the contract on the parties concerned.

Recollect firstly that the 2011 Fiji Government was not a lawful elected government but one which had taken power forcefully through the 2006 coup by Bainimarama.

The 2011 pension changes enforced by military decree it enforced had two elements, one which was for future retirees (and which may be called lawful) and one which was blatantly illegal (for existing pensioners).

Future retirees were given the option of taking the reduced single pension rate of 9% (reduced from 16%) OR they could take their lump sum balance. This element may be called the “reform” (whether any such policy by an illegal government can be called “lawful” is an arguable point).

But the 2011 Decree also trashed the existing legal contracts FNPF had with existing pensioners, that had been willingly signed by FNPF without any duress from anyone, by forcibly reducing existing pension rates which ranged from 16% to 25%, or forcing the pensioner to take their remaining FNPF balance as a lump sum (which many did).

The existing higher pension rates had been lawfully agreed to by lawful Fiji Governments and FNPF Boards and management.

[I had personally argued as an NFP Member of Parliament in 1998 (and my statements are in the Hansard Records, and later misused by FNPF) that FNPF should have there and then reduced the rates to 16% and not gradually from 25% to 16% as the SVT Government then decided.]

Some of these high rates may be considered generous, but only to those who survived long enough after taking the pension “gamble”.

There were many pensioners who died soon after taking the pension option and before they “got their money back” with the sad result that their families lost out in the pensioner’s gamble.

The FNPF never discusses and never gives statistics on these sad outcomes which are many given Fiji’s disastrously low life expectancies. Readers can ask themselves how many pensioners do they know who have died below the age of 60.

The harsh fact remains, that by forcibly reducing existing pensions through the 2011 changes, the Bainimarama Government (with the help of the FNPF Board and management), effectively took away (“stole”) a proportion of the life savings of existing pensioners, a case of “daylight robbery”.

This was challenged in court by pensioner the late David Burness, assisted by lawyer Dr. Shaista Shameem and a USP economist Professor Wadan Narsey who used several months of his valuable time during his Sabbatical Leave from USP to help prepare the case (and his writings on the FNPF was probably the cause of his being forced out of USP).

That full 28 page report fully explaining the illegality of what the Bainimarama Government was proposing to do may be downloaded here:

https://narseyonfiji.files.wordpress.com/2014/02/2011-z-narsey-report-for-burness-shameem-case-13-august-2011.pdf

That Burness-Shameem case (Civil Action: HNC No 183 of 2011) was accepted for hearing in the Fiji courts but not allowed by the Bainimarama Government to proceed to its logical conclusion.

Proof that the unilateral changes to the contracts of existing pensioners were fundamentally illegal (and therefore can legitimately be labelled a “theft” of existing pensioners’ private property) is that Clause 170 of the 2013 Constitution imposed on Fiji states that the Burness case cannot be heard by Fiji courts. Why not, if the “law” is supposed to apply equally to all?

The late David Burness sadly suffered for several years in his vain but courageous battle to stop FNFP from stealing a proportion of his modest life savings in the FNPF contract that FNPF had itself willingly signed with him when he retired.

His “pro bono” lawyer Dr. Shaista Shameem went on to other things (currently Professor of Law at University of Fiji) but has not been heard publicly on  FNPF’s “theft” from the existing pensioners in 2011.

I also find it deplorable that the International Social Security Association (ISSA) apparently gave FNPF two awards to recognize the “good practices implemented by the Fund to ensure the fund’s continuing sustainability, benefits to members and building public awareness on financial issues”, with no mention whatsoever about the illegality of reducing existing contractual pensions, whatever the merits of reducing future pension rates.

  1. Why do FNPF Statistics start from 2009?

The public need to ask themselves:  why do all the glossy Annual Reports, Supplements and proud boasts by Godgoda and Koroi start with 2009 data and not earlier?

Is it coincidental that by doing so, the FNPF Board and Management do not have to explain the massive $300 million “impairment” losses resulting from the FNPF investments in Natadola and Momi between 2006 and 2009 when some construction and management contracts were broken willy nilly by FNPF at great cost to FNPF itself?

There is no mention of wasted financial opportunities with wonderful assets like the Grand Pacific Hotel which was callously left idle soon after the 2006 coup, providing expensive accommodation to soldiers.

Who in the FNPF Board and management then were responsible for these huge losses which have been conveniently shoved under the carpet by successive Annual Reports?

  1. Why does FNPF not show statistics on the “pension take-up rate”?

Economics and business students should find the FNPF Annual Reports a fascinating case study of how easy it is to present masses of glossy statistics and pictures to embellish one’s boasts of successful business management while    quietly censoring “undesirable” statistics and graphs.

Why do the FNPF Annual Reports refuse to give consistent long term statistics and graphs on

  • the “pension take-up rate” which is the “proportion of retirees who choose to take the pension offered by FNPF and not the lump sum option) or the Annual;
  • the annual Lump Sum Withdrawals since 2006;
  • the annual Annuity Payments to those who choose the pensions option?

While there are bits and pieces of data here and there in all the Annual Reports (and some are hard to find after 2011), there are no consistent long term tables and graphs showing clearly the changes taking place in these variables since the year 2006 when the Bainimarama Government took over.

After painfully gathering the required statistics I present a few here.

The Statistics and Graphs Not Given

Graph 1 shows that with a Pension Take-Up Rate of above 20% when the Bainimarama Government took over the Board of the FNPF in 2006, the Pension Take-Up Rate declined to below 5% after the “reforms” of 2011 and even 2% when large numbers of existing pensioners, faced with the illegal reduction of their pension rates to 9%, were effectively blackmailed into taking out their savings as lump sums, at great cost to themselves.

How utterly scandalous that for the last four years, only a miserable 5 percent of the new retirees have been taking pensions while the vast majority (95 percent) have been taking their lump sum options.

Graph 2 gives the trend on “Annuities Paid” by FNPF to pensioners (in millions). Of course, the amount was rising before 2011, but it was still a mere $50 million.

But following the alleged 2011 “Reform”, the pensions paid crashed to just around $23 million per year where it has remained for the last six years.

It is a shameful blot on all the FNPF Board Members since 2011, that the Annual Reports have declined to give solid time series data and graphs on the Pension Take-Up Rate or the annual Annuity Payments which would show only too clearly to FNPF Members how the Pension Take-Up Rate totally collapsed after their alleged 2011 “Reforms” and that FNPF has failed to encourage retiring FNPF Members to take the pension option rather than the lump sum.

How utterly scandalous that while the FNPF Chairman (Godagoda) and the FNPF CEO (Jaoji Koroi) profusely thank the FNPF contributors for “having trust in them”, the harsh reality is that they have utterly failed: 95% of the FNPF retirees have been choosing to take their lumps sums and run, rather than trust the FNPF Board and Management.

There are other statistics and graphs that the FNPF Board and Management do not highlight for Members such as the steadily increasing gap between inward Contributions and Lump Sum Withdrawals.

Graph 3 shows you the steady rise of Annual Contributions by Members (enforced by law as a fixed percentage of Fiji’s Wages and Salaries Bill), into the FNPF coffers and amounting to more than $600 millions currently.

It also shows that the Lump Sum being taken by retirees has also been rising but slowly, and is only around $160 million currently.

Hence automatically, the gap been steadily rising, available for investments and other withdrawals for housing or education needs and of course the virtually stagnant annuities in Graph 2.

Clearly, the “Record Net Profits” frequently boasted by the FNPF Board and Management is due far more to the 18% contribution required by law, than any great management by the Board of CEO.

5. The two positives

While the FNPF is no longer a fund to serve “pensioners” but rather  a forced savings and investment fund for all the Wages and Salaried persons in Fiji, FNPF contributors can take two comforts from the current operations of the FNPF.

The first is that the ordinary FNPF employees are in my personal opinion honest decent hardworking people, genuinely trying to serve the FNPF contributors according to the laws of Fiji (which are set by the Bainimarama Government) and the internal rules set by the FNPF Board and management.

The second is that even as a savings and investment institution, FNPF is able to pool and lend the bulk of workers’ savings to Government at a managed interest rate while investing the remainder in some fairly profitable monopolies (like the ATH and its subsidiaries). The net percentage return to FNPF members is therefore still significantly higher than the fixed deposit interest rates that offered by the other financial institutions in Fiji, such as the banks.

It is deplorable however that successive FNPF CEOs, like Aisake Taito and Jaoji Koroi have taken ownership over and boast about the alleged financial success of  the 2011 “Reforms” with no acknowledgement that it also included the forced reduction of contractual pensions of existing pensioners like the late David Burness, illegally taking away a proportion of their life savings.

  1. Who owns and controls the FNPF?

It is a national tragedy and a horrible indicator of the absence of true democracy that there is virtually no public debate in Fiji on who ultimately owns the FNPF and who should control it through the FNPF Board.

The unions are totally silent even though they once had their own board members.  The employers’ associations are also silent although they have little to lose from total government control.

Let me again repeat the importance of having employee representatives on the Board given that it is their savings which are at the heart of the fund.

Let me again point out the absolute conflict of interest in having government nominate the majority of FNPF Board members and have the Permanent Secretary of Finance sit on it, given that government itself is the largest borrower from the FNPF. This would never happen with a private bank.

With Australian Super, the bulk of the Board Members are extremely talented and qualified persons appointed by Australian Council of Trade Unions, the pinnacle body of trade unions in Australia. Some are appointed by employers’ organizations; and the Chairman is an independent highly qualified and well-respected professional jointly approved by the unions and the employers.

But from 2006, all FNPF Board Members have been appointed by the Bainimarama government, un-elected from 2006 to 2014 and only elected after 2014 through a system of its own making.

While recent FNPF Reports state that the Chairman (Godagoda) and Member Sanjay Kaba do not collect Board fees, there are pertinent questions that FNPF Members should be asking. Are there any conflicts of interest between Board Member’s other financial interests and FNPF contracts with clients?

For instance, the FNPF Chairman from 2009 has been the financial controller of a private company (CJ Patel) which has enjoyed several financial benefits from the Government.

Have any of the other Board Members also enjoyed FNPF contracts through their normal employment?

Other fascinating changes

Research students might want to examine the FNPF Annual Reports from its inception and identify all the changes that have occurred in board membership, Vision, Mission and Values statements, the statistics and graphs presented and then excluded and ask why.

The public can also ask why all the reports written by the dozens of consultants hired using the Members own money, are being kept hidden by the FNPF Board and Management. Is it that they pointed out the illegality of what the Bainimarama Government and its Board was planning to do?

Good economics and business students (including Masters and PhD students) will find any number of fascinating topics to research in the financial operations of this mammoth financial institution, which is far more important to Fiji than all the banks put together.

FNPF is also the most important institution in the lives and deaths of  all wages and salaried people of Fiji, and indirectly, of all citizens of Fiji current and not yet born.

The Fiji public remain quietly apathetic at their peril.

 

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