Prof Wadan Narsey: Consultants helping Fiji military milk the FNPF pension cow

As only someone of his calibre and no-nonsense approach can, Prof Wadan Narsey once again demystifies the FNPF Symposium presentations for us.

Professor Wadan Narsey

1 June 2011

Some one kindly sent me the presentations at the recent symposium stage-managed by the Bainimarama Regime and FNPF management -and cruelly disrupted my peaceful work in quiet law-abiding Kagoshima Japan.

The FNPF symposium was to forewarn the public of forthcoming changes in the management, operations and pension rates of the FNPF.

The only substantial presentations were from the two Australian consultants Promontory (Stephen Mason and Shauna Tomkins) and Mercer (Richard Codron) but they probably also had a heavy input into the two presentations by the FNPF management.

The public were not given the detailed consultants’ reports, or the actuarial studies, data and associated financial projections, to back up their recommendations. 

Nor were the public given reports that explain the causes of the recent investment disasters by the FNPF Boards.

The FNPF owners were simply asked to accept, on the basis of simplistic data and graphs, the recommendations of the consultants and FNPF management, at face value.

Yet serious questions may be asked, for example, whether the Mercer calculations are correct, especially their assumption of Fiji’s future mortality patterns following Australian patterns.

Sadly, while these consultants and FNPF management talked about accountability and transparency, and the need to protect “whistleblowers”- they do not apply these same principles to themselves with their data and analysis.

In particular, the Promontory recommendations on the “Restructured Board” are a total sell-out of sound principles of accountability of the FNPF management and Board, to the real owners of the FNPF, and their restructured Board will continue the FNPF mess into the foreseeable future.

These consultants’ direct involvement in the politically inspired symposium sadly shows how supposed independent experts in their field, will prostitute their services into illegal processes being stage-managed by this illegal Military Regime.

These consultants are no doubt earning large consultancy fees- which the unaccountable FNPF Board and management will not reveal to the public, giving the lie to their claims of transparency, accountability and integrity.

These consultants’ recommendations also make sure that they will continue to milk the  FNPF cow well into the future, just like the ATH fiasco thirteen years ago.

The continued lack of information

It is quite likely that the high pension returns of between 15% and 25% as a small proportion receive, are not sustainable and not “fair” to current contributors. 

But these are legal contracts between FNPF who offered and signed them with those receiving the pensions, and in case we forget, FNPF is also corporate entity bound by Fiji contract laws. 

These legal contracts cannot be changed without the consent of the pensioners.

But legal contracts are not a problem for this Military Junta.

It is also likely that FNPF may have to reduce pension rates for those retiring in the future.

But by how much and why, are the tough questions on which neither the FNPF Board and management, nor the consultants are providing the data that FNPF contributors and pensioners are entitled to see.

Using the information I gave FNPF management a few weeks ago, Aisake Taito quoted me stating in Parliament in 1998, that for sustainability, the pension rates should be immediately brought down, to ensure equity between pensioners and contributors.

Taito conveniently forgot to mention that the debate in 1998 was whether to bring the  rate down from 25% to 15% immediately (which was my recommendation then although I would have lost out personally) or gradually down by 1 percentage point annually to reach 15% eventually. 

The latter was adopted largely because of pressure from older Parliamentarians, FNPF management and FNPF Board (some of whom personally benefited from the final decision).

But the current discussions are about reducing pension rates even further from 15% to 9%, in a totally different economic and political environment for the FNPF Board and the economy.

The tragedy is that the owners of the FNPF are not allowed to see the reports and the actuarial analyses behind the current consultants’ recommendations, while there are serious questions that we can ask, even on the bits of information that are available.

Is the Mercer analysis correct?

The Promontory recommendations are based on the Mercer actuarial analysis.

The Mercer presentation stated that the mortality rates they used were derived from “the 2008 Fijian population life tables prepared by the World Health Organisation”:  no big problems with that (although the Fiji Bureau of Statistics should have their own life tables).

But then the Mercer presentation states that they used “Mortality improvement based on experience of the Australian population over 25 years as reported in the current Australian Life Tables (2005-07).”

Can projections of improvements in Australian mortality be used to predict future trends in Fiji’s mortality?

Australia’s life expectancy is rising, their people are living longer, and drawing pensions for longer.

If the Australian patterns of mortality improvement did apply to Fiji, then Fiji people would also be living longer, and the sustainability of FNPF pensions may indeed require relatively lower pension rates for Fiji.

BUT if Fiji’s mortality falls or stagnates, then Fiji’s pensioners will die earlier not later as predicted by Australian trends, and Fiji’s pension rates would need to be relatively higher.

Fiji’s mortality patterns?

All indications are that Fiji’s mortality will not fall like Australia’s and Fiji’s life expectancy will not rise like Australia’s.

In Fiji, life expectancy for some ethnic and gender sub-groups groups actually fell between 1986 and 1996.

Demographer Dr Martin Bakker, working with the Fiji Islands Bureau of Statistics, concluded that  “adult mortality has actually increased somewhat during the period 1986-2001” and at best there may be a mortality stagnation, not improvement.  Dr Bakker attributed what I called this “perverse” result (“perverse” because Fiji’s GDP per capita was concurrently rising) to

(1) possible deterioration in the delivery of health services for adults by the Department of Health;

(2) increase in non-communicable (lifestyle) diseases amongst the adult population;

(3) differential net migration, with successful emigrants more likely to be healthy persons than unhealthy (i.e Australia, NZ, Canada and US don’t want our “sickies” as residents).

While I am not a demographer (although I do population projections), I would suggest that these three factors will be even stronger in the future.

First, the continued losses of qualified health personnel and the stagnation of the Fiji economy and health budget, will continue to worsen the Fiji health service system.

Second, the life style diseases will worsen as people fall more into poverty and Fiji people consume more and more processed westernised foods and junk foods (as my forthcoming 2008-09 Household Income and Expenditure Survey Report  for FIBoS will reveal).

Third, the emigration of healthier persons will continue now that even qualified indigenous Fijians are emigrating in large numbers like qualified Indo-Fijians and Others, leaving behind a less intelligent political electorate of all ethnic groups, whose political and social leaders (military included) will periodically and callously destroy the economy and FNPF’s revenue streams, for their selfish ends.

Therefore Mercer’s use of the Australian improvements in mortality to project long-term pension outflows for Fiji is not appropriate.

What would be the impact on sustainable rates of return if we made different assumptions about Fiji’s future life expectancy?  We do not know. 

Because none of the consultants (from Mercer or the Promontory) or the FNPF management, are releasing any actuarial Reports, or their detailed analysis, or any sensitivity analysis which might inform a few of us more numerate persons amongst the generally senile and apathetic pensioners of Fiji.

Despite my pleas to the Promontory consultants, they are themselves not going to be the whistleblowers (who they claim to want to protect in their proposed new legislation for FNPF).  

The real consideration for both Promontory and Mercer would be, quite understandable, why risk future juicy consultancies to help for FNPF contributors, when it is the FNPF management and the Military Regime that gives them the consultancies and pays their fees?

The Consultants’ next Board?

Possibly the most horrifying aspect of Promontory’s nasty role in this exercise is their explicit recommendations for the continued Military Regime’s total control of the FNPF Board.  ie for the major borrower from the bank to continue to control the bank.

The Promontory consultants recommend a 14 person Board, with 7 appointed by the “Minister”, 1 “Government” representative (ie the Military Government will already appoint 8 out of the 14 and effectively control the Board), 4 Independents, 1 from employer groups and 1 from employee groups.

Pray, why only 1 for all the hundreds of thousands of employees who actually own the money in FNPF?  Tomkins and Mason facetiously refer to the “ILO Committee of Experts” as if this justifies the token representation for the employees.

Who will select the 4 “Independents”.  Who knows?

Why cannot the majority of the Board be elected by the FNPF Members so that their interests are solidly looked after? 

The Tomkins and Mason presentation cynically stated “elections for Board members not practical – and too expensive”. Wow.

Here we have an FNPF which proudly boasts of being highly computerized in its financial and demographic data; all the mailing addresses of the FNPF contributors and pensioners should be known; all should have their own ID cards. If any pensioner does not show up every six months their pension stops.

It would be simple enough for all these FNPF members, over a one month period at their leizure, to go into any FNPF office throughout Fiji, and cast their votes for their own representatives to the FNPF Board- with separate representation for contributors younger than 40, those between 40 and 55 and the pensioners, to ensure all interests of FNPF owners are safeguarded; and by all means have eligibility criteria such as education, lack of criminal records etc.

But no, our expensive overseas experts saw this as too “impractical and expensive”! 

So despite seeing with their own eyes the massive financial damage that has been done to FNPF by its major borrower and controller (the Government) and the total lack of accountability of the FNPF Board and management to its real owners (the contributors and pensioners), what do our great expert consultants recommend?   More of the same.

What did FNPF pay these expensive consultants?

The rhetoric of good governance

The consultants spout heaps of rhetoric about new legislation that will ensure that the FNPF Board governs well: proper codes of conduct; strict eligibility requirements; strict grounds for removal etc; and even a great role for “prudential supervision” by the RBF.

So what is new?  Such provisions have been there and flaunted with impunity by this unelected Military Regime and its appointees, and even previous Boards appointed by elected governments, where also there were no members directly elected by FNPF contributors and pensioners.

This Military Regime has sacked Board Members and appointed whoever they wanted, with impunity.

Their new Boards have blundered and been replaced by others, equally unaccountable and non-transparent.  No one has been taken to task and no one will ever be taken to task.

What a laugh for the consultants to claim that the Reserve Bank of Fiji will have greater powers of oversight over FNPF.  They always allegedly have, and failed miserably. They even have a conflict of interest in forcing back FNPF interest earning investments to Fiji.

This Military Regime sacked a Governor of the Reserve Bank and appointed their own with impunity. They can do it again.

The real control of the FNPF Board and management will continue to be this Bainimarama Regime and their hangers on, who have treasonously removed elected governments, willy-nilly changed the judiciary, spat on constitutionality and the rule of law, abused human rights, and continue to deny our freedom of speech and assembly. 

Why would anything change at FNPF just because of new legislation by military decrees?

Consultants and illegality

Note that the presentations by the consultants (Promontory and Mercer) themselves made no explicit recommendation to the Military Government to illegally reduce the pension rates of existing pensioners, by military decrees or otherwise.

But Tomkins and Mason state in their presentation that there will be a “Staged implementation .. some provisions commence on gazettal”.   Gazettal?  By whom? And with what legality to change contracts?

Cunningly, the expert consultants left it to the FNPF management presentations to recommend that existing pensions must be reduced. 

So expect more illegal military decrees.  Who cares about the trifling matter of the breaking of sacred contracts?

Future milking by consultants assured

The Promontory presentation by Shauna Tomkins and Stephen Mason mentions, as if in passing that a future “Board will be required to develop and offer alternative retirement income products ... subject to actuarial sign off and Reserve Bank approval .. and that the law will provide a structure for other financial institutions to offer retirement income products ... this will take some time to develop …” (ha ha ha. read: more consultancies).

They also recommend the splitting of the FNPF (notionally) into two funds- the Retirement Savings Fund and the Retirement Income Fund; there to be portions for compulsory pensions, other portions which may be taken as lump sums, or as other products, etc.  Details to be worked out (ha ha ha. read: more consultancies). 

But what a good way to earn consultancy fees by creating the illusion of two separate funds out of the same pool of FNPF money owned by the same contributors and pensioners.  Oh yeah!

There is also the Mercer discussion of “demonopolisation” to offer competition to  FNPF while pointing out the resulting “high responsibility on Government to oversee new providers to protect public” (this Government protecting the public? what a joke.)

Mercer also suggests “Offer partnerships to other institutions with proper credentials in investment, insurance, micro-finance to assist reducing FNPF dominance and development of stronger financial services industry” (ha ha ha. Read: more consultancies).

But what?  Create other institutions to reduce FNPF’s already weak powers in the small financial market where they are forced to lend at low rates of interest already?  Oh yeah!  Let us have some competition to reduce the returns to FNPF further.

All these changes, good governance, transparency, etc will be supervised by the Reserve Bank of Fiji which continues to be under the total control of a Military Regime which refuses to release Auditor General’s Reports for the last five years (which would show its theft of hundreds of millions of taxpayers’ dollars) or any report which will show the Military Regime’s role in the mess Fiji is currently in.

But we can all live happily ever after, because the Reserve Bank of Fiji and FNPF management will have the continued support of actuarial experts and consultants from Mercer and Promontory.

So expect more FNPF symposium charades, orchestrated by more expert foreign consultants who will, for generous consultancy fees to themselves, help this Military Regime to milk the FNPF cow further.

Tough luck, if the milk dries up for the pensioners and current contributors who own the FNPF.

That is not the consultants’ problem.

To the Fiji wolves circling the FNPF cow, add another wolf- the foreign consultants to FNPF.

Post-script

 FNPF Management, the Military Regime, and the “Principal:Agent” problem

Readers might wish to understand the phrase “principal – agent problem” in the context of FNPF (and many other organizations).

The “Principals”: are the “owners” of the enterprise:  here the FNPF contributors and pensioners.

The “Agents”: are those charged with looking after the interests of the owners: here the FNPG management, the FNPF Board, and the Government, are the “agents”.

The “Principal: Agent” problem arises when the “agents” begin to run the organisation in their own interest rather than that of the Principal. 

This problem arises frequently in large corporations where the shareholders are too diffuse to have effective control over management.

A similar problem is at work with FNPF. We already understand how successive Fiji governments (including this Military Regime) has used the FNPF money for its own deficit financing and other nefarious purposes.  But do not forget the interests of the FNPF management.

When I had asked FNPF management why they not abide by their commitment to transparency and accountability and release all the reports to the public, the answer from one senior manager was:  I don’t want to go and plant cassava.

But readers may wish to also keep in mind the following simple arithmetic which may partly explain the FNPF management’s enthusiasm for the changes being recommended.

In any year, there are inflows determined by the compulsory contribution rates and investment earnings.  The outflows are determined by the withdrawals and pensions paid.

Reduce the pensions paid (and the withdrawals) then you automatically increase the amount of “free cash” or liquidity within the FNPF- which should belong to the members as a reserve, but it also becomes “available” to improve the salaries and perks of the management and staff. 

But especially likely to benefit will be the salaries and perks of the senior management with fancy titles, who supposedly make the key decisions (while all the real work is done by outside consultants). Is it any wonder that the FNPF management are also very keen on the “reforms”.

So keen to get more money into the system that one of them has had the very bright idea:  why not get some deposits from school children?

“Hey, their money will be with us to use for another forty fifty years, before they start withdrawing.   Who cares if by that time their money will be worthless anyway (because of the inflation caused by all the irresponsible governments we can expect);and we won’t be here to answer to anyone. What a good scam, if only we can pull it off.  Let us hope that there are lots of gullible parents who will trust us to safeguard and invest their children’s money wisely.  We will lend lots to Frank and Aiyaz, of course, who will keep us here, away from the cassava teitei.”

Oh yeah.