Fiji National Provident Fund

A new Act

Stephen Mason
Shauna Tomkins

May 2011

Date Promontory Financial Group Australasia 1

Introduction
1. Key features of the new law
2. New Fund structure
3. The Board
4. Entitlement to benefits
5. Improved enforcement
6. Reporting and communications
7. Strong supervision structure
8. Transition to the new law

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New Fund structure

 The FNPF to be “split” into 2 funds

 Retirement Savings Fund (RSF)
 Purpose of RSF: to hold and manage contributions to
maximise the amount available at retirement
 Retirement Income Fund (RIF)
 Purpose of RIF: to pay pensions provided by the
Board under the new law and under the FNPF Act
 Each fund has a different risk profile and is
managed separately
 The funds are accounting entities
 Consistent with best prudential practice

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New Fund structure

 The RSF will collect, hold and manage

contributions and voluntary contributions
 The 2 account structure for the RSF
 The preserved account
 The general account

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The Board

 A restructured Board
 7 members, appointed by the Minister
 Elections for Board members not practical – and too
expensive
 1 member from employer groups panel
 1 member from employee groups panel
 the concept of the most representative trade unions, …this type
of provision is not in itself contrary to the principle of freedom of
association, provided that certain conditions are met (ILO
Committee of Experts)
 1 Government member
 4 independent members

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The Board (continued)

 Chairman and Deputy Chairman to be independent

members
 Skills requirement
 Board to have an appropriate mix of legal, financial,
investment, risk management and commercial skills
 Reserve Bank to apply “fit and proper person” test
before appointment
 Security of tenure – limited grounds for removal, eg
 Reserve Bank advice that Board member no longer “fit
and proper”
 Bankruptcy
 Conviction for serious offence / disqualified from acting as
a director
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The Board (continued)

 Requirement for Code of Conduct for Board

members and staff
 Detailed provisions about conflict of interests
 Explicit duty on the Board to act in members’ best
interests
 Explicit duty on Board members to ensure that
 Board acts in members’ best interests
 Board complies with the new law
 Requirements for Board committees
 Audit, investment, risk management, HR / remuneration
 Whistleblower protection
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Contributions and benefits

employer employer Voluntary

Split between
contributions the preserved
and general
account is as
mandated determined by
70% contributions 30% the person who
pays the
voluntary
contributions
(employee or
employer)

Preserved account General account

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Contributions and benefits (continued)
Entitlement event Preserved General account
account

Turning 55 Yes Yes

Retiring from workforce after Yes Yes

turning 55
Death Yes Yes

Leaving Fiji permanently Yes Yes

Physical or mental incapacity Yes Yes

from ever engaging in
employment

First home Limited access Yes

Other “social good” purposes, No Yes

eg medical, education
purposes, as determined by
the Board with Reserve Bank
approval

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Contributions and benefits (continued)

 Requirement to take the minimum amount from

preserved account as a pension
 Except where very low amounts (administratively
inefficient)
 Will be a life pension unless the annual / monthly
amount is below the base pension amount (to be
determined)
 If it is, can be a term pension, or an account based
pension
 Can top up the pension with any excess over the
minimum amount, use the excess for another
product or take itas a lump sum
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Entitlements to benefits (continued)

$ Preserved account May be taken as an

pension (same or
different), as a top up
to the pension, or as
lump sum

Must be taken as an
pension

Low value amount;

paid as lump sum

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Contributions and benefits (continued)

 The general account amount can be taken as an

addition to the pension, or as a lump sum, or as a
different kind of pension product

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Contributions and benefits (continued)

 The Board will be required to develop and offer

alternative retirement income products
 not just the life time, single / joint product
 Other products will be subject to actuarial sign off,
and Reserve Bank approval
 The law will provide a structure for other financial
institutions to offer retirement income products
 Again, subject to actuarial sign off and Reserve Bank
approval
 In line with recommendations of World Bank, IMF etc
 This will take some time to develop …

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Contributions and benefits (continued)

 Nominations for death benefits

 Restricted to spouse, children, parents and financial
dependents
 Nominee must be one of these at member’s death
 If no valid nomination, benefit becomes part of the
member’s estate

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Entitlements to benefits (continued)

 Housing concession from preserved account

 Housing’s multiplier economic effect
 A one off right to access up to
 28.5%* of preserved account and
 All of general account
 Limited to first home purchase or construction
 Requirement to repay the preserved account in
priority.

* Assumes a preservation of 70% of contributions; this provides access

to 20% of total contributions

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Improved enforcement

 A comprehensive set of powers for the Board to

enforce employers’ obligations
 Includes
 Audit / examination rights
 Powers of entry and inspection
 Powers to recover outstanding amounts in full
 Extending liability to directors of employer companies
where appropriate
 Garnishee powers
 Stop travel powers
 All subject to appropriate protections
 Legal professional privilege etc

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Strong supervision structure

 Explicit recognition that Reserve Bank has the role

of prudential supervision of the Board and its
operations
 Principles to guide Reserve Bank supervisory actions –
members’ best interest, prudent management
 Key actions require Reserve Bank approval /
actuarial sign off

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Strong supervision structure (continued)

 Critical role for actuaries

 A major role in transition – restructuring into 2 or more
funds
 Monitoring sustainability of existing products
 Evaluating new products
 Advice on investments
 Financial condition reports to Reserve Bank
 Critical role for auditors
 Financial statements
 Risk management policies and procedures advice
 Valuations in accordance with accounting standards

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Strong supervision structure (continued)

 A comprehensive set of supervisory tools and

requirements for the Reserve Bank to use -
including
 Prudential rules
 Examinations and on-site inspections
 Requirements for financial condition reports
 Strong reporting requirements to Reserve Bank
 From Board
 From actuary / auditor
 Powers to give directions to Board
 Statutory management if necessary

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Strong supervision structure (continued)

 These powers will apply to any body that is licensed to

offer retirement income products if that market is opened
up to competition

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Transition to the new law

 A new Retirement Savings law

 Retirement Savings Regulations
 A FNPF Transition law
 Staged implementation
 Some provisions commence on gazettal
 Some Board governance provisions, some
enforcement provisions, nominations, family law
provisions, restructuring requirements etc
 2 fund structure, 2 account structure – will need
preparatory work before they can commence

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Q&A

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