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Added contributions

Fiji National Provident Fund
Saturday, May 20, 2017

Saving for retirement may seem impossible when you don't have enough money.

This is especially true when you rely on one income with little to no extras just to get by.

It is also something that you do not take seriously when you are young and have just started work.

Common questions that we encounter from our members are "how am I supposed to save for retirement with such a low income?" From younger members, we are asked "why save for retirement when it is so far away" or "when should I start saving?"

We need to take into account that the time we actually start saving will make a lot of difference too.

Yes, time is a critical factor in savings; and the little you put away over a longer period of time can amass into a considerable amount.

So, the sooner you start saving the more you will earn over time given the power of compounding.

For those saving later in life, the need to put away larger amounts of money over a short period of time can seem quite daunting.

But, it is do-able. All you need is the discipline to remain committed to your savings plan. FNPF recognises that members can contribute to their own retirement savings through AdditionalContribution, a product launched on 1 January, 2015. What is Additional Contribution and what are some important features of this product?

As the name suggests, Additional Contribution, is the contribution that you choose to add to your mandatory contribution of 8 per cent.

Note the word "choose", Additional Contribution is not compulsory, it is entirely your choice based on your capacity to add to your own FNPF savings. Currently, mandatory contributions for compulsory members is 18 per cent (10 per cent from employers and 8 per cent from the member).

Some employers provide benefits known as Excess and pay over the 10 per cent mandatory contribution for their employees. The great thing about Additional Contribution is members have a choice to pay additional of up to 12 per cent.

With our vision in mind, we have a responsibility to ensure our members are well informed to make decisions that are in their best interests to secure their retirement.

This is important as statistics have revealed that 75 per cent of our members have balances below $10,000.

To understand how Additional Contribution can grow your savings we provide you with the following scenarios; Jone Nasiga, is 21 years old and has just graduated with a degree in Finance and has just started to work at a financial institution in Fiji.

His starting salary is $15,000. He has minimal commitments without tax being deducted from his salary.

He learnt of FNPF's Additional Contribution from a friend. He calculated the amount he would save if he contributes an additional 3 per cent from now until age 55.

Assumptions:

* Age started: 21

* Retirement age: 55

* Annual salary before tax: $15,000

* Compulsory Employee Contr: 8 per cent

* Compulsory Employer Contr: 10 per cent

* Withdrawals: No withdrawals until retirement (including the 1st time housing assistance of 30 per cent of the Preserved Account i.e. 21 per cent)

* Special Death Benefit Premium: $35 p.a

* Annual Salary growth rate: 0 per cent

* Interest rate: 6 per cent p.a.

With the above assumptions Jone's projections were as follows:

Scenario 1:

a) With Additional Contribution

* Employer Contribution: $125/month

* Employee Contribution: $100/month

* Additional Contribution: $37.50/month

* Estimated Total FNPF balance at Retirement (age 55): $334,413

Worse-case scenario, if Jone takes pre-retirement withdrawals every year during his working life, exhausts his General Account, then by the time he retires he would have an estimated total FNPF balance of $236,617.

Scenario 2:

b) Without Additional Contribution

* Annual salary: $15,000

* Employer Contribution: $125/month

* Employee Contribution: $100/month

* Additional Contribution: Nil

* Estimated Total FNPF at Retirement (age 55): $286,124

Again, if Jone takes pre-retirement withdrawals every year during his Additional Contributions working life and he always depletes his General Account, then by the time he retires, he would have an estimated total FNPF balance of $202,815.

Jone understands that the purchasing power of his FNPF funds will be affected by the inflation rates, in other words, his balance will reduce due to the inflation effects.

When Jone saw the trend (Refer to Graph 1) he was excited! When Jone retires, his total additional contribution would be around $15,300 and around $228,468 interest would have been credited to his account bringing his balance to $334,413. (Please refer to Assumptions)

Jone decided to register for additional contribution. He knew that as the years progressed, his salary would increase. This means an increase in the monetary value of both his employer and employee contribution, and that he would have more to add to his additional contribution.

The other advantage of additional contribution is that a member can decide what percentage goes to the General or Preserved Account.

Members funds have been split into these two accounts. Jone decided that all his Additional contribution will go to his General Account as he wanted to accumulate enough savings for a property later in life.

His colleague Nancy, who is 45 years old, chose to put her additional contribution to the Preserved Account so it could accumulate.

She wants to benefit from the savings when she eventually retires.

Nancy feels that with her additional savings she will be less dependent on family members.

Once you've made the decision for the deduction of additional contribution and it has been registered and approved, you will not be able to revoke or amend it until after 12 months or a year from the date of approval.

If you have excess or disposable income, why not invest it in Additional Contributions.

Who is eligible to contribute Additional Contribution?

A member with valid membership and is an employee of a registered employer with FNPF

Form to complete

Employees Additional Contribution Form or EAC 1

Who is responsible to complete the form?

- Member and Employer to complete the form

- Employer's representative to submit form to the nearest FNPF office Additional Contributions was introduced to help you save more for your retirement!

It is important to note that any withdrawals from your FNPF savings will gravely affect your retirement.








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