Business and Development

Fiji's Pension Scheme: Blueprint

For Other Island Territories

From ROBERT KBITH-REID in Suva

Native Fijians have enjoyed one form of built-in social security for centuries their communally organised form of society has seen to that.

But Fijian tradition has been broken down by the impact of western city life.

Today, an old Fijian, at the end of a long life as a city dweller, as likely as not can no longer count on auto matic comfort from his koro (village) to cushion his old age.

His fate is more likely to be bleak years of destitution in a tiny tin shack on Suva’s outskirts, somehow surviving on a $6 a month govern ment destitute’s allowance.

Hundreds of Indians, part-Euro peans, Chinese and others making up Fiji’s multiracial community of 550,000 people already eke out such a miserable existence.

Tens of thousands of their grand children will, if all goes well, be much more fortunate.

In February, the foundations of what will eventually become a com prehensive form of 20th century-style social security was laid when the Fiji National Provident Fund paid out its first life pensions.

The pensions went to three people who, reaching the age of 55, the retirement age accepted by the fund, chose to take money it held to their credit as an annual pension rather than in a lump sum.

Assuming normal life expectancy— the FNPF sets this at 70—the pioneer pensioners will get a return of at least four times more than they would have collected in lump form.

Fiji’s Minister for Social Welfare, Mr Mohammed Ramzan, is proud of the new FNPF scheme, and calls it “probably one of the best in existence anywhere in the world”.

It marks the transformation of the National Provident Fund into a base upon which a comprehensive social security system covering everyone in regular employment can be built.

Twenty years from now, as the fund approaches its 30th year, thousands of Fiji citizens will be eligible to collect a life-pension worth several thousand dollars a year at present values.

The Fiji fund started nine years ago.

Based on a report by a British social security expert, it was put into working shape by another Briton, Mr Hugh Robinson, who is still its manager.

Membership is compulsory for almost everyone in Fiji with a regular job.

Until last December contributions were made to the fund at the rate of 10 cents for each dollar of an employee’s pay—sc from the employee and 5c from his boss.

On reaching 55 the employee got the whole lot, plus interest, as a lump sum. If he didn’t make 55, his dependants got the lump sum plus a $l,OOO special death benefit.

In December, contributions were hiked by 2c—a cent from the employee and a cent more from the boss —to build up a new pension element.

The pensions, for those that chose

to take their money as such, became available from January 1.

Going by averages the first pensions are not worth much. The FNPF’s 100,000 members have an average of $9OO each to their credit.

As a pension is one-quarter of the lump sum available on retirement, this means the first pensioners are drawing about $250 a year or just over $2O a month.

But this is, at least, better than the $6.50 a month destitutes’ pittance that some otherwise penniless old couples are trying somehow to live on.

According to Mr Robinson no one in the fund yet has $lO,OOO to his credit, but quite a number already have enough to give them a sl,ooo-a -year pension as of now.

As the fund, now standing at $41,000,000, grows, pensions will get

correspondingly bigger,

The basis for Mr Ramzan’s claim of “best in the world” says Mr Robin son, is that FNPF members now have a choice, They can opt for a lump sum or a combination of both.

“It’s up to an individual to make a choice in the light of his needs,” he

No Pensions For Non-Citizens

says. “As far as I know it is the first scheme in which there is a com pletely free choice.”

With, say, $12,000 against his name, a retiring worker can take this in one payment with which to buy a house or maybe a business or a small farm. Or he can take a $3,000 a year pension.

If he picks a pension and lives to 70 he’ll collect at least $45,000.

A combination of a lump sum and a pension could give him $6,000 in cash and a $1,500 pension.

There are some stipulations, how ever.

The FNPF won’t pay a pension of less than $4B a year which means anyone with under $192 in the fund must take the money in one payment.

And those wno opt for cash will not get all the money to their credit.

They wul lose one-sixth—the extra 2c in the dollar that people have been paying since December—because this money is needed to keep the pension scheme going.

The fund’s rules exclude payment of pensions to non-citizens who have to take a lump sum, but Fiji citizens who go abroad can still collect pen sion cheques.

A person who quits the fund and then rejoins it will not get a pension, nor will a woman who withdraws from it after marrying.

Another poin: is that a man can opt for a joint payment for himself and his wife. He will get two-thirds the pension he would have got other wise, but this will continue to be paid to his wife after his death.

According to Mr Robinson, the present rate of contribution to the pension scheme might not be big enough to sustain it, but it will be at least five years before an increase will become necessary.

FNPF members now get five per cent interest on the money they have in the fund.

This, says Mr Robinson, is not likely to go much higher for a long time because the fund prefers to con centrate on building the pension fund up rather than pay higher interest.

In any case, he adds, since the FNPPs own earning rate on invest ments made with fund money is just over per cent what members get is “not a bad rate”.

One drawback is that a pension will not get cost-of-living adjustments

made to it to counter the effects of inflation.

To do this it would need a massive direct government subsidy that the Fiji Government could not afford to pay.

So, anyone counting on a $5,000 pension 20 years from now needs to realise that this amount will buy a lot less than it will buy now.

But between now and then, the FNPF is bound to be modified to overcome, at least in part, erosion of value by inflation.

Mr Ramzan already has several improvements in mind.

Fiji’s pension scheme is likely to be adopted in other parts of the Pacific.

The British Solomons, Western Samoa, Papua New Guinea, the Cooks and the GEIC have already adopted the Fiij scheme in its original form or are in the process of doing so.

As these schemes become well established, only a little tinkering will be needed to make them pensioners also. • Several hundred people, protest ing against a new system devised by the Fiji Government for deciding who was eligible for family assistance, marched in procession to the Welfare Department building in Suva in March.