ASFPNG CALLS FOR IMMEDIATE ACTION ON LONG-STANDING SUPERANNUATION REFORMS

The Association of Superannuation Funds of Papua New Guinea calls upon the Government to urgently progress the long-standing reforms required to strengthen retirement security, protect workers’ savings and support the stability of Papua New Guinea’s financial system. 

Papua New Guinea’s superannuation industry has developed into one of the country’s largest and most important pools of long-term domestic savings. These savings belong to workers and their families and must be managed prudently, transparently and in the best interests of members. 

However, significant policy, legislative and taxation issues affecting superannuation members remain unresolved despite extensive consultations, industry submissions and formal reviews conducted over many years.

The Superannuation and Life Insurance Review Report 

ASFPNG notes that the Superannuation and Life Insurance Review was established to examine many of the issues now being raised by the industry, including:

• compulsory superannuation coverage; 
• contribution adequacy; 
•  early access to retirement savings; 
• housing advances; 
• retirement and preservation ages; 
• governance and prudential regulation; 
• employer compliance; 
• member protection; and 
• the broader sustainability of the retirement-income system. 

The resulting Superannuation and Life Insurance Review Report is understood to be before the Treasurer.

ASFPNG is concerned that the report has remained without visible implementation for an extended period, while the problems it was intended to address continue to affect workers, employers, superannuation funds and the broader economy. The Government should advise the industry and the public of:

1. the present status of the report; 

2. the recommendations accepted or rejected by Government;

3. the legislation and regulations proposed to implement accepted recommendations; and

4. the timetable for progressing the reforms.

The review process involved considerable public and private-sector resources. Its findings should not be permitted to remain inactive or effectively collect dust while the retirement security of Papua New Guinean workers remains exposed. 

ASFPNG President and Nasfund Chief Executive Officer, Mr Rajeev Sharma, said the industry remained ready to assist Government to translate the review recommendations into practical reforms.

“The industry has participated in extensive consultations and has repeatedly placed its concerns and proposed solutions before Government. “The priority now must be implementation. Further delay will continue to reduce the retirement outcomes of members and weaken confidence in the reform process.”

Priority areas for reform 

1. Universal superannuation coverage

A large proportion of working Papua New Guineans remain outside the compulsory superannuation system. 

Many employees working for small businesses and organisations employing fewer than 15 people do not receive the same statutory retirement protection as workers employed by larger organisations. 

ASFPNG supports the principle of “Super for All”, under which compulsory superannuation coverage would be progressively extended to all eligible workers, regardless of the number of people employed by their employer.

 Consideration should also be given to removing unnecessary waiting periods and requiring contributions to commence from the beginning of employment. 

Employment in a small business should not mean that a worker receives less protection in retirement.

2. Adequate employer and employee contributions 

The statutory employer contribution rate of 8.4 per cent has remained unchanged for many years.

ASFPNG supports a properly researched and phased review of contribution rates, having regard to: 

• wage affordability; 
• employer capacity; 
• inflation; 
• projected retirement needs; 
• life expectancy; 
• medical and housing costs; and 
• the long-term adequacy of members’ retirement balances. 

Any adjustment should be introduced gradually and in consultation with employers, workers, Government and the superannuation industry.

3. Preservation of retirement savings

Frequent or substantial early withdrawals can significantly reduce a member’s final retirement benefit. 

A member loses not only the amount withdrawn but also the compound investment earnings that amount would otherwise have generated over the remaining working life of the member. 

ASFPNG supports a review of unemployment withdrawal provisions, including consideration of limiting unemployment withdrawals to the member’s employee-funded component while preserving the employer-funded component for retirement, subject to appropriate hardship protections. 

Government and industry should also consider complementary arrangements, including: 

• unemployment insurance; 
• emergency savings products; 
• savings and loan facilities; and 
• properly defined financial-hardship provisions.

Retirement savings should not be required to perform the function of every other form of social protection. 

4. Reduction of the tax on superannuation investment income 

The current 25 per cent tax imposed on superannuation investment income materially affects the returns ultimately credited to members.

Superannuation funds must generate returns sufficient to meet operating costs, taxation and inflation before members receive any meaningful real growth in their retirement savings. 

ASFPNG therefore calls for the tax rate applying to superannuation investment income to be reviewed and progressively reduced to a level that is regionally competitive and consistent with the national objective of improving retirement outcomes.

5. Target-based retirement planning 

Retirement planning should not focus only on whether a person intends to retire at 50, 55, 60 or 65 years of age. 

Members must also understand the amount of savings they will require to maintain an acceptable standard of living after retirement.

Inflation means that the cost of housing, food, transport, healthcare and other essential needs will continue to rise. 

ASFPNG will continue to encourage its member organisations to strengthen: 

• financial education; 
• retirement calculators; 
• member counselling; 
• voluntary contribution programmes; and 
• retirement-income products.

The objective should be to move public understanding from simply asking, “What is my account balance today?” to asking, “What income will my savings provide throughout my retirement?”

6. Housing advance reform 

Housing remains an important part of retirement security. 

ASFPNG supports a review of the rules governing housing advances, including advances for housing constructed on customary land. 

The current restriction linking a subsequent housing advance to the amount of an earlier advance should also be reconsidered. 

A member’s eligibility should more appropriately reflect: 

• the member’s current eligible savings; 
• present housing needs; 
• the cost of construction or purchase; and 
• the member’s capacity to comply with applicable requirements.

7. Prudential investment in national development 

Superannuation funds are significant institutional investors in Papua New Guinea. 

Their investments in government securities, domestic companies, banks, property, infrastructure and other sectors contribute to economic stability, employment and national development. 

ASFPNG supports the development of appropriate investment instruments that may allow members to participate indirectly in PNG’s resource and infrastructure growth. 

However, every investment must satisfy strict requirements relating to: 

• governance; 
• commercial return; 
• egal enforceability; 
• risk; 
• liquidity; 
• diversification; and 
• protection of members’ funds. 

Superannuation savings must not be treated as an automatic source of funding for projects that have not met proper commercial, legal and prudential standards.

Proposed garnishee powers over customer bank accounts 

ASFPNG is also concerned about recent proposed tax amendments that would expand the Internal Revenue Commission’s ability to garnish or recover funds directly from customer bank accounts in circumstances that may override or impair a bank’s existing mortgage, security or contractual rights. 

ASFPNG supports the proper collection of lawfully assessed taxes. However, tax recovery mechanisms must be carefully designed so that they do not unintentionally undermine the stability of the banking and financial system. 

Where statutory garnishee rights take priority over a bank’s mortgage or security interests, the potential consequences may include: 

• increased loan-loss provisioning by banks; 
• stricter lending and credit-assessment requirements; 
• reduced willingness to lend against certain forms of security; 
• higher interest rates and loan-pricing costs; 
• lower profitability within the banking sector; and 
• reduced access to credit for businesses and individuals. 

These consequences would not be confined to banks.

Superannuation funds are significant investors in PNG’s banking institutions. Any measure that materially affects bank profitability, asset quality, capital requirements or dividend capacity may also affect the investment returns ultimately credited to superannuation members. 

ASFPNG therefore supports the concerns raised by the banking industry and calls for the proposed amendments to be subjected to full consultation with: 

• the Bank of Papua New Guinea; 
• the Internal Revenue Commission; 
• the Department of Treasury; 
• the banking industry; 
• superannuation funds; 
• employers; 
• borrowers; and 
• other affected stakeholders. 

Tax enforcement should be effective, but it should not displace legitimate secured-creditor rights without a clear assessment of the consequences for lending, financial stability, investment returns and the wider economy.

Priority status for unpaid employer superannuation contributions 

ASFPNG is further concerned about money deducted from employees, or otherwise legally payable by employers, that is not remitted to the relevant superannuation fund.

These amounts are not ordinary commercial debts. 

They represent statutory retirement entitlements earned by employees and held or payable for their benefit. 

Where the State is reviewing the hierarchy or statutory priority of payments to government institutions, creditors or other bodies, unpaid superannuation contributions should be afforded a high priority.

This should apply particularly in cases involving: 

• insolvency; 
• liquidation; 
• receivership; 
• restructuring; 
• enforcement against employer assets; 
• garnishee proceedings; and 
• competing statutory claims. 

Amounts owed to superannuation funds for the benefit of employees should rank ahead of ordinary unsecured commercial debts and should receive appropriate statutory protection against competing claims.

Employer contributions are part of an employee’s remuneration and retirement entitlement. Failure to remit those contributions deprives workers of both the original amount and the investment earnings that would have accrued over time. 

ASFPNG therefore calls for stronger measures to: 

• identify and recover unpaid contributions; 
• impose interest and penalties on defaulting employers; 
• hold responsible officers accountable where appropriate; 
• improve employer reporting and reconciliation; 
• protect employee entitlements during insolvency; and 
• give unpaid superannuation contributions clear statutory priority.

A coordinated national response 

The issues affecting retirement savings cannot be addressed by superannuation funds alone. 

ASFPNG calls for structured engagement involving: 

• the Treasurer and Department of Treasury; 
• the Bank of Papua New Guinea; 
• the Internal Revenue Commission; 
• the Department of Labour and Industrial Relations; 
• employers; 
• employee representatives; 
• the banking industry; 
• licensed superannuation entities; and 
• other relevant stakeholders.

ASFPNG also requests a formal update on the status of previous industry submissions, the Superannuation and Life Insurance Review Report and the reform measures proposed under the taxation and superannuation legislation. 

Mr Sharma said the reforms were ultimately about protecting workers and their families.

“Behind every superannuation account is a person, a family and a future.

“Decisions made today about coverage, contributions, taxation, withdrawals, employer compliance, secured lending and investment policy will determine whether our people retire with financial security or remain vulnerable in their later years. 

“ASFPNG stands ready to work constructively with Government, regulators, employers, banks and workers to develop a fair, sustainable and inclusive retirement-income system.” 

ASFPNG reaffirms that its first responsibility is to support a safe, sustainable and member-focused superannuation system. The Association will continue advocating for reforms that:

• expand superannuation coverage; 
• strengthen member balances; 
• protect unpaid employee entitlements; 
• improve financial literacy; 
• preserve legitimate secured-lending arrangements; 
• promote responsible investment; and 
• provide every working Papua New Guinean with a better opportunity to retire with dignity. 

Mr. Rajeev Sharma 

President 

Association of Superannuation Funds of Papua New Guinea Inc. (ASFPNG) Email: info@asfpng.org | Tel: +675 320 2000