Problems maintaining a secure fund under pressures – Fiji Experience

1. PUBLIC SERVICES INTERNATIONAL12TH ASIA PACIFIC REGIONAL CONFERENCE17-21 October, 2011, Sydney AustraliaRegional Campaign WorkshopDockside Convention Centre Problems maintaining a secure fund under pressures – Fiji Experience

2. 1.0 KEY FEATURES OF THE CURRENT PENSION SCHEME 1.1 The FNPF is a self-funded defined contribution scheme based 8% contribution by the employee and 8% by the employer. The main defined benefit characteristics are: • Guaranteed minimum crediting • Capital guarantee 1.2 However, the above characteristics lack meaningful preservation requirements as the fundamental social objective is compromised through the system of early withdrawal for social requirements.

3. 2.0 REFORM AGENDA 2.1 The Promontory Financial Group of Australia LLP was engaged last year by the FNPF “to provide technical assistance to develop a legislative framework for the prudent and sustainable delivery of retirement savings and related services that are in the best interests of the people of Fiji in the long term”.Regrettably, the contents of the Policy Paper prepared by them are significantly devoid of an understanding of the socio-economic conditions applying in Fiji.

4. 2.2 It fails to recognise that 65% of Fiji’s workers are paid wages below the poverty line. They, therefore, have little capacity to accumulate savings from which to supplement their housing loan repayments, children’s education expenses, and expenditure related to funerals, marriages, medical treatment etc. They remain reliant on the FNPF for such contingencies.

5. 2.3 The Policy Paper makes no reference to, and obviously lacks consideration of, the fact that unlike Singapore and Malaysia where employment opportunities are plentiful, the employment market in Fiji has remained depressed for years now. The laid-off workers may remain unemployed for several months, if not permanently. There being no unemployment benefits to which they could seek recourse, the alternatives are to either apply for partial withdrawal of their contributions from the Fund with which to support themselves and their families until they find another job.

6. 3.0 THE CONSULTANTS PROPOSAL TO CUT PENSION RATE & REDUCE PENSIONS OF CURRENT PENSIONERS BY 64% 3.1 Pension Rate Cut • The Promontory Group proposed that pension rate should be cut down to 9% from the current rate of 15%. • That current pensions paid to pensioners be reduced by 64% as their calculation showed that if it continued the Fund will collapse in 2050.

7. 3.2 If the objective of the current exercise, as stated, is to provide financial security after retirement, then it would seem incongruous, if not absurd, that consideration be given to further reduce the rate of pension from 15% of the Members’ contribution to the proposed rate of 9%. 3.3 Given that 65% of the workers in the country are paid wages below the poverty line, they will hardly accumulate sufficient savings, based on the current contribution rate of 8%, to generate an annuity which would provide for their basic needs in their retirement years.

8. 4.0 CURRENT RATES OF ANNUITY MUST BE PROTECTED 4.1 The proposal to reduce the pension rate is neither warranted nor necessary, and will be a gross injustice to the workers of Fiji. It can be avoided if the proposals in these submissions are implemented. 4.2 The existing rate of pension must be protected and enhanced. It is wrong in law to alter pensions to the disadvantage of the recipient.

9. 4.3 Pensioners have made commitments based on their current rate of pension – drastic cuts to the rate now will create considerable hardship, particularly, as FNPF’s pension is not indexed to the cost of living, and is generally inadequate for 65% of the Fund’s members who are paid below poverty line wages.

10. 5.0 LUMP SUM WITHDRAWALS 5.1 The option to Lump Sum withdrawal on retirement should be left open to the members. If they wish to withdraw the total sum standing to their credit then so be it. They must not be forced to convert it into an annuity against their wish. 5.2 It makes more sense for a member to receive a lump sum which he may re-invest to start a small business to support himself and his family rather than receive a pittance as annuity which will be absolutely inadequate to provide for his basic needs. The choice should be left to the member.

11. 6.0 INDEXATION OF PENSION TO THE COST OF LIVING 6.1 Currently, the FNPF pension is a fixed lifetime sum without any provision for its indexation to offset increases in the cost-of-living. As a consequence, the real value of the pension undergoes significant reduction over a period of time. It is estimated that over a time frame of 7 years, the erosion in the real value (or purchasing power) of the pension could be as high as 25%, calculated at 3.5% annual inflation compounded. 6.2 As an example, the purchasing power of a monthly annuity (pension) of $200 will reduce to approximately $150 by the end of the seventh year.

12. 7.0 CURRENT LEGAL CHALLENGE AGAINST THE REFORM IN THE HIGH COURT 7.1 The legal challenge in High Court is to stop the reduction of current pension payment by 64% which is a contractual obligation of the fund. 7.2 A 75 year old beneficiary is taking the FNPF to Court to stop any amendments to the FNPF Act. I am also a plaintiff with others in this Class Action.

13. 7.3 He says his human rights to live with dignity in old age, his right to protection of his property, his right to social security, and his right to life, all of which the Republic of Fiji, as a member of the United Nations, is compelled to protect, will be violated if the proposed reforms are enacted. 7.4 The legal context is that the proposed review of the FNPF pension scheme will unfairly discriminate the pensioner and will breach the contract between the FNPF and him. The fiduciary duty of FNPF towards the pensioner, as well as FNPF’s contractual obligations towards him, is included in the action as grounds for legal scrutiny by the High Court.

14. The FNPF proposal is an outrageous disrespect for the rights of elderly beneficiaries who have contributed so much to Fiji’s economy through their hard work and total dedication to Fiji. 7.6 The application has been made pursuant to the Human Rights Commission Decree No.11 of 2009 and international human rights law, and relies on the common law on human rights, contracts and fiduciary duty of the state.

15. 8.0 REMEDIES SOUGHT IN THE CLASS ACTION 8.1 That the Court declare, as a human rights protective remedy, that the Applicant pensioners pension benefit cannot be reduced in any shape or form by the FNPF Board, the Republic of Fiji and/or the Attorney General at any time. 8.2 That the proposed review of the FNPF Act and Pension Scheme which will reduce the pensions of members, in the applicant’s case by 64% is unfair discriminatory within the meaning of unfair discrimination in Fiji’s human rights law and the obligation of the Republic of Fiji to comply with United Nations international human rights law prohibiting unfair discrimination on the grounds inter alia of age, status and persona characteristics and circumstances.

16. 8.3 That the proposed review of the FNPF in the terms communicated to the members of the Fund constitutes a breach of contract entered into between the Applicant, pensioner, the FNPF Board and the Government of Fiji. 8.4 That, in any event, the Court declare that any FNPF review intending to reduce or adversely change or alter the current pension benefit of the Applicant would constitute a breach of his human right to dignity in old age, to social security, his right to life, breach of fiduciary duty of the Board, and the State’s contractual obligations to him since the FNPF was a mandatory pension Fund at the time the Applicant was working and he was denied the opportunity by law to contribute to another pension scheme during his working life.