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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