"Continuous Improvement - A must to achieve a world class super for PNG workers,” says Nambawan Super

When the Mekere Government introduced the Superannuation General Provisions Act (the Act) in 2000, the umbrella legislation covering the operations of all super funds in Papua New Guinea, there was certainly no expectation that this law would be set in stone forever. 

Rather, as with all laws, the Government’s expectation would have been that as new industry, economic and market developments emerged over time, the Act would be reviewed and amended. Continuous improvement would be required to enhance the superannuation system and allow it to continue delivering appropriate benefits to members. 

The intention behind the original Act was to entrench prudent and responsible practices within the superannuation industry and other financial institutions, so as to protect the rights and entitlements of PNG workers. To this end a number of major reforms were introduced. 

But time has now marched on. Ten years down the track from this last major legislative change, Nambawan Super firmly believes the time is right to take a close look at the Act to make sure it takes into account the significant changes that have occurred over the last decade. And even more importantly, to ensure the Act remains relevant and appropriate in the face of the expected potentially dramatic changes to the PNG economy and workplace.

As an industry, sitting on our hands and doing nothing to ensure the protection of our members’ interests and the long term wealth prospects of our society is highly inappropriate and in fact, irresponsible. Nambawan Super takes its responsibility to safeguard its members’ interests, and that of the country as a whole, very seriously. 

In view of this concern, and in our position as a leader in the superannuation industry, Nambawan Super is calling for the establishment of a Task Force Committee to carry out the extensive consultative review of the Act in the light of the significant changes in the PNG economy and workplace.

The changes proposed by Nambawan Super include:

Contribution rates
Expanding superannuation is a sensible way to preserve value from our growing economy, relieve inflationary pressure and boost members’ wealth in retirement.

The current compulsory contribution rates were set when we gained independence, nearly 36 years ago. Nambawan Super proposes increasing them by 2%. This would move the current employee portion of 6% to 8% and the employer portion from 8.4% to 10.4%, bringing total contributions up from 14.4% to 18.4%. Even with this modest rise, the fact that every additional K1 contributed by the employee triggers a contribution of K1.40 by the employer means the opportunity for a better lifestyle in retirement for workers and their families.

To place PNG rates in regional context, Singapore’s total contribution rate is as high as 30% and Fiji’s is 16%. Australia is also considering raising its superannuation guarantee (employer contribution from 9% to 12%, in a similar bid to achieve long term benefits from favourable economic conditions.

Life & Medical insurance
We are concerned about the growing number of members seriously ill or dying from preventable lifestyle diseases, an alarming trend, which is also putting intense cost pressure on our health system. Many of these people would survive if they had access to ways to prevent disease and effective medical treatment.

Under current legislation super funds cannot fund members’ life insurance premiums from its profits. It can do so, however at the election by each member with extra contribution. If the contribution rates are increased, we recommend reconsidering this position, recognising that such a move may also help relieve the health cost burden.

Payments on compassionate grounds
Nambawan Super advocates amending the legislation to allow the Trustee to be able to make payments to a member on compassionate grounds, such as where the member’s immediate family is critically ill and life can be prolonged with medical treatment.

‘Family’ super
Nambawan Super is in favour of introducing a new product to allow fund members to have sub-accounts for their family members. The sub accounts will be set up on Voluntary contributions. A culture of savings in our society will also be promoted here. 

Housing withdrawals
Many of our workers struggle with the cost of housing their families properly, with many forced to live in settlements. 

Under current law members can only withdraw personal contributions for housing. We recommend the Review consider putting in place a formula that allows the member to use part of their employer contributions also for this important purpose. Making this change will help achieve a long term solution to our country’s housing problems.

Extending the Super net
The facts are: there is no welfare system in PNG; more and more people are demanding the western lifestyle, particularly the younger generation; and many workers are not contributing towards funding their retirement or other benefits available through superannuation. We need to think and plan now to ensure our society has the means to support our people.

Under our current superannuation arrangements, PNG is falling well behind our regional neighbours. Fiji, with a population of 1 million, has 300,000 workers contributing to super.  Here we have over 6 million people and only around 400,000 contribute towards their long term financial security. 

There are over 35,000 companies registered in PNG, yet less than 4,000 contribute to super on behalf of their workers. We recommend taking steps to give all PNG employees access to superannuation by removing the contributions threshold based on a minimum number of employees, currently 15. Further, so smaller companies are able to manage the increased cost of providing super for their employees, we propose a lower contribution rate for companies employing less than 15 employees as a starting position. 

RSA limit increase
The RSA has proven very popular with members reaching retirement age and preferring to keep part of their benefit payout growing in the super environment. While the 2011 Budget has increased the maximum account balance to K250,000, which is a very positive step, Nambawan Super believes that as member balances continue to increase, it make sense for the RSA maximum to increase as well. We recommend consideration of K500, 000 as the revised maximum that can be held in the RSA product.

These are just some of the changes being proposed and a formal consultative process will obviously be carried out after formalisation. Nambawan Super’s Board and management are in contact with the industry Regulator – the Bank of PNG, as well as the Government and other industry participants.  Last year, we wrote to the Regulator, proposing a comprehensive review of the Superannuation Act along with the starting suggestions.  We are pleased to report that the Bank has been receptive to this and will present the proposal to the Minister for Finance and Treasury. A formal process which normally takes 6 to 8 months for extensive consultative process will then take place.

In its ten years of operation the Act has achieved a number of very important reforms to improve the ability of Papua New Guineans to provide for their retirements. Members have greatly benefited from the significant transformation that was brought about by the introduction of this legislation. All the more reason to have an effective review process to make sure workers’ entitlements continue to reflect the changing nature of our economy and the needs of our society.

As an organisation dedicated to looking after the long term financial futures of our members, Nambawan Super is confident that the proposed measures will encourage long term savings and enable people to build a financially secure lifestyle, whilst tapping into the expected economic boom. One day all the natural resources we are blessed with will run out. Let’s learn from the lessons of many countries that have misapplied the opportunities we have now. It’s how we save now and our collective spending disciplines that will determine our future and that of the generations behind us.

Mr Leon Buskens

Managing Director
Nambawan Super Limited



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