Sunday, March 29, 2009

Our 29 questions to the FNPF- You judge the quality!

Our 29 questions to the FNPF
By SOPHIE FOSTER - Saturday, March 28, 2009

Every local worker in the country is legally obliged to put part of their wages into FNPF's hands for their superannuation
LAST week the Fiji Times ran an opinion piece based on figures provided in the Fiji National Provident Fund's 2007 Annual Report. In the article, FNPF was asked to consider its operating costs first before charging members a $20 processing fee for all applications. FNPF responded by taking out a full-page advertisement criticising the article and calling for any clarifications to be first sought from the Fund. So on Tuesday evening, SOPHIE FOSTER of the Fiji Times sent a list of 29 questions (with several sub-questions) to FNPF chief executive Aisake Taito, grouped into five areas: Processing fee, Operating Expenses, Staff salaries and wages, Staff benefits, and Other matters.
FNPF's response on Wednesday was "After evaluating the questions today, I would like to inform you that the Fund has addressed most of the issues that you have raised in our response to your opinion. We would not be elaborating any further. Vinaka."
As a result, we informed FNPF that we would "run a series of articles based on these questions. In this series we will include all the questions sent to you and your exact response" (which was no response at the time).
Yesterday morning, FNPF had a change of heart and decided to answer the questions posed.
So the Fiji Times decided that in the interest of greater discussion, we would run all the questions asked and the answers FNPF provided in full.

Dear Mr Taito,
Further to your call for any clarifications to be sought from the Fiji National Provident Fund first, I wish to seek further information and your comments with regard to the following:
Processing fee:
TIMES: You have publicly stated that the processing cost for applications is $43. How long has it been $43?
TIMES: What was the processing fee in 2006, 2005, and 2004?
FNPF: The processing fbeen (sic) the same for the years stated; exasperated.
TIMES: Are you able to offer a comparison with FNPF's processing fee in previous decades - 1990s, 1980s, 1970s?
FNPF: $43 is charged for direct housing transfers and $30 for transfers to approved lenders; $50 for small business applications and $200 for legal costs for housing transfers.
The charges have varied a little over the years.
The $200 legal fees are minimal compared to the fee charged by law firms; following member complaints the Fund extended this service to members. This was usually outsourced at a minimum of $500 per transaction.
TIMES: Do you believe that a $43 processing cost for each application is high?
FNPF: We reiterate that members need to share the cost of processing pre-retirement assistance.
TIMES: You have mentioned that FNPF is "committed to driving the actual processing cost down by improving workflows and streamlining its processes and systems via Business Process Re-Engineering". When did this process begin?
FNPF: In 2008 the Fund initiated moves towards changing the organisation structure, processes, systems etc.
Several initiatives have been pursued in light of this; including the formation of a Change Management Team; who have reviewed all our internal processes esp. in regards to Operation matters (members and employer processes).
This has been further strengthened by review to the Fund's Strategic Plan for FY09 - FY11.
TIMES: Was this an internally-driven exercise or were consultants hired to design and oversee the process?
FNPF: Of course, this is internally driven and is under the CEO's direct supervision.
Consultants have been hired on a needs basis for short term to review internal recommendations and to assess effectiveness and workability.
TIMES: If a consultant was hired for the process, how much did that cost?
FNPF: Cost is confidential between the Fund and service provider.
TIMES: Do you believe that FNPF must address any internal inefficiency first before charging members a $20 processing fee?
FNPF: We reiterate that members need to share the cost of processing pre-retirement assistance.
TIMES: Has a processing cost goal been set for FNPF employees, and if so, what is it and what is the deadline to achieve it? If not, why has this not been set as yet?
FNPF: All FNPF staff members have individual targets (measures & timelines) in which they need to deliver their sections and division's Key Performance Indicators (KPIs) under the Fund's Key Responsibility Areas (KRA); they are assessed against this. These are clearly set out in the newly introduced Balanced Score Card.
Operating Expenses:
TIMES: Regarding the operating costs, do you believe that quoting this as a proportion of total portfolio is selective and misleading in FNPF's case?
FNPF: The Fund's point exactly. You were selective in just quoting the total operating expense, without quantifying it against another variable.
You cannot take the operating expense figure and judge an organisation's performance on it. It has to be analysed and critiqued against other variables.
Fees charged for Fund's under management can be used as a comparison.
TIMES: Wouldn't a more pertinent indicator be the cost of collections, which is the operational cost as a proportion of annual collections?
FNPF: The Fund's TOER (Total Operating Expenditures Ratio) is calculated against the total collection.
This is one of the benchmarks used by the Board and executive management to measure efficiency of the Fund's operations.
TIMES: How does FNPF compare on that scale (cost of collections) with other international benchmarks, such as that set by the Singapore Provident Fund?
FNPF: The Fund fairs quite well in this regard. In fact, recent studies by the World Bank and IMF have pointed out that FNPF a low TOER when compared to other retirement Funds.
Staff salaries & wages:
TIMES: The Fiji Bank Employees Union has publicly stated that the salary adjustment exercise only accounted for around $500,000 of the total $1.3million increase in salaries and wages cost for FNPF in 2007's report. Do you dispute the union's statement?
FNPF: Staff members also got share in performances (SIP) and merit payment. This was approved and paid out by the former Board and Management.
TIMES: How much of the increased salary and wages bill was spent on the salary adjustment exercise?
TIMES: What is your comment with regard to the union's claim that the other $800,000 was spent elsewhere, such as on middle to upper management and consultancies?
FNPF: Middle to upper management also received SIP and merit payout in late 2006.
The previous Board's approved organization structure came into effect in 2006. This resulted in about ten new management positions being filled.
Fund also expanded its Corporate Governance structure; likewise employed new staff in the Operations division (see Page 56 of the annual report).
Temporary employees were also engaged to man various FNPF services to assist special assistance withdrawals such as the Pay Reduction Assistance and Low Wage Income. Interestingly, partial withdrawal applications for 2007 increased by 87% to 134,678 from the 2006 figure.
TIMES: FNPF is a monopoly and receives members' contributions by statutory power. As such, do you agree that FNPF does not have the same cost challenges that other superannuation agencies overseas do trying to gain customers in a competitive environment?
FNPF: No - regardless of the statutes; the cost challenges are the same, FYI ... most super funds in the region (Pacific Island countries; except for PNG) are all monopolies. The same is true for Malaysia and Singapore.
TIMES: In which department are the majority of FNPF staff concentrated?
FNPF: (Did not answer this question)
TIMES: How many staff work on investments?
FNPF: (Did not answer this question)
TIMES: How many staff work on customer/member service?
FNPF: (Did not answer this question)
TIMES: What is the ratio of managers to other staff in FNPF?
FNPF: (Did not answer this question)
TIMES: How do salary levels of equivalent local positions in FNPF compare with commercial banks which operate in a real competitive environment?
FNPF: Current rates are based on the 2007 market rates of the financial sector.
TIMES: Do you believe that the board and management of FNPF are doing enough to be accountable for their actions to members of the Fund?
FNPF: All FNPF board members take very seriously their fiduciary duties to ensure that members' interests remain paramount.
The Board takes pride and maintains a high level of professionalism in conducting their responsibility as trustees and custodians of members' funds.
The Board has and will always exercise due diligence and care in ensuring that decisions made are in the best interest of members
The Board will continue to champion best practices through accountable and transparent dealings in all facets of the Fund's operations and investment.
Staff benefits:
TIMES: Why does FNPF offer staff loans when it clearly states that it is not a bank?
FNPF: Loans are not restricted to banks only. The Fund is part of the financial sector. And it's not unusual for employers in this sector to provide benefits to staff.
Again, you need to understand that the Fund offers these benefits to retain and attract qualified persons; it's nothing new, it has been in place since the Fund was established.
TIMES: What measures have been taken to curb staff withdrawals and loans?
FNPF: There are stringent guidelines for staff withdrawals and loans.
TIMES: How many staff members exactly make up the total loans to staff in the 2007 report?
FNPF: (Did not answer this question)
TIMES: Why are FNPF staff members allowed to take out loans for cars when the members themselves are restricted from doing so?
FNPF: Refer to Q1.
TIMES: Regarding your statement that withdrawals by members are a leakage from the system while staff loans are revenue generation:
What rate of interest does FNPF earn from staff loans?
FNPF: It is in par with the market rate for employees of the Finance Sector.
TIMES: Do you believe it is fair to label FNPF interest earned from staff loans as expenses recovered?
FNPF: It's not an expense in the first place.
Other matters:
TIMES: A segment of the 2007 annual report was not endorsed by auditors because of problems with a major FNPF investment in Natadola. Does this not concern you?
FNPF: The non-inclusion of the 2007 subsidiary accounts was due to the withholding of the financial documents by the former project managers of the Natadola hotel development, Asia Pacific Resorts International Limited (APRIL).
FNPF had taken all necessary actions in an effort to retrieving the accounts of the companies, including NBRL, to comply with the Fiji Accounting Standards. These include filing a High Court action against APRIL in September, 2007, seeking the Court's intervention in retrieving all documents in relation to these companies."
Some of these documents have been received and are before our auditors for verifications and qualifications.
TIMES: By how much has the Natadola project broken initial cost estimates?
FNPF: The accounts are currently with our auditors and we will be disclosing this in FY08 accounts
TIMES: When do you expect the 2008 annual report to be made public?
FNPF: This should be finalised soon; as financials need to comply with International Financial Reporting Standards which the Board adopted in June 2008. FNPF Accounts audit will now need to meet the International reporting standards, which is a new concept of standards world over
TIMES: Does it not concern you that the FNPF has delivered a net inflation return on investments of just 0.36 per cent between 2006 and 2007?
FNPF: Investment revenue actually realized by the Fund had increased from $159m to $200m, an increase of 25%. We reverse the impact of unrealized losses on investments (actually ATH shares - this reversed the next year when their share price recovered). Therefore, Net inflation return of the Real Return for 2007 is 2.10% and not just 0.36% as stated. Unrealized loss/gain has no cash impact.
The investment increased by 3%. Cash forms part of an investment portfolio and this is included in 'Other Assets' and increased from $23.8m to $124.6m. Thus including this, the investment portfolio increased from $3.172bln in 2006 to $3.266bln in 2007. (Large cash balance due to repatriation of offshore funds ordered by the Reserve Bank)
TIMES: What measures are being taken to rein in spending by FNPF Investments, given that some projects under it are not providing significant returns as yet?
FNPF: The Fund needs to spend money to make money
TIMES: Do you believe that FNPF members have a right to be consulted over major policy changes which affect them directly?
FNPF: Under the FNPF Act, the Board is empowered to implement and improve policies that are in the best interest of its members. We have made several changes since 2007 to the Withdrawal policies; where we have continually revised policies and minimised excessive pre-retirement withdrawals. Board took into consideration external factors, the surrounding circumstances, economic and financial climate and most importantly, the purpose for which the Fund has been established for; before approving these changes.
TIMES: Would you classify FNPF members as virtual shareholders?
* Sophie Foster is the Associate Editor of the Fiji Times. These questions were posed as part of her normal day-to-day duty as a journalist.

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