24 September 2010 The National Retirement Benefits Scheme
(NRBS) Bill 2010 has been passed by the Legislative Assembly this month, which will provide a similar mandatory superannuation plan for the Private Sector and other organizations, in addition to the public servants.
The Government of Tonga has a mandatory superannuation scheme for the public servants under the Retirement Fund Act 1998. The Board of Directors of the Retirement Fund maintains the records, reviews the activities and makes investment decisions. The funds accumulated are paid out as a pension when the employee retires and/or reaches a certain age.
A superannuation plan is an investment vehicle which operates primarily to provide benefits for retirement. This is basically a means of setting aside funds during working life for use as retirement income, under a regulatory system which provides certain taxation incentives and prudential controls for the benefit of contributors. Typically the employee contributes to the plan and the employer matches the contribution or makes a set minimum contribution (e.g. 5% of base salary) to the plan.
In an exclusive interview with Hon. Afu'alo Matoto, the Minister for Finance and National Planning, he said that, "The Government in setting up this scheme to assist Tongans in saving for their retirement which requires employees to contribute to a retirement scheme and for the employers to match the contributions".
The approval of the Bill last week would require all employers to participate in the Scheme. Some private sector organizations already have their own scheme and the Bill allows organizations with their own scheme (that is as good as or better than the Scheme) to maintain their own scheme (i.e. not to join).
The new scheme accommodates daily labourers and this applies for both public servants and the private sector. Only employees who have full-time jobs tendering over 3 -6 months are liable to join the scheme, excluding self-employed workers. It will be the responsibility of the employers to take from their salary and contribute to the scheme. The funds from this NRBS would also be invested so as to earn income for the employee.
An administering Board
The new scheme will have inspectors to ensure that contributions are made. Similarly, the funds would be controlled by a board similar to the Board of the Retirement Fund Act 1998. The Finance Minister is to appoint the Board which have 7 key members comprising of:
- 3 representatives from employees
- 3 representatives of employer
- 1 independent (skills/background in field) advisory
Expected members joining the Scheme
"There are currently approximately 5000 public servants who are covered by the Retirement Fund Act who would be excluded from the NRBS. Likewise many persons in the private sector are already in schemes, and those employers may not choose to join the NRBS. There are approximately over 10,000 persons working in the private sector employment", indicated the Minister.
It is expected that the numbers who will join the scheme will be more.
What this means for the private sector employer
A major concern of the private sector is that historically, company pensions were a way of encouraging loyalty in employees then from ‘shopping around' for other employers. The pension offered would help reduce turnover which makes the cost to the employer worthwhile. With a national scheme, an employee who leaves one employer can take their superannuation funds with them to their new employer, thus the employer loses the benefit of paying into a retirement fund.
The Bill indicates a starting contribution of 5% of (gross) salaries. This means that employee's take home (net pay) will decrease by more than 5%. It also means that employers who are not currently contributing to a superannuation scheme will have to start. These employers are likely to be the smaller employers in the Kingdom. This is a new ‘cost' to them. After several years, the rate would increase to 7% and eventually climb to 10% of salaries.
Retirement scheme a requirement
For employers who currently do not have a superannuation scheme or retirement plan, they should consider that this will be a requirement in the not too distant future, whether it is on a national level or whether the employer can maintain its own plan.
Either way this will be an additional cost to the employer and the employee as well, as superannuation schemes are generally contributory. Therefore, if the employees are not currently contributing to a super plan or retirement plan, he may well have to in the near future, and this will cut into his net pay and purchasing power.
ENDS
Issued by the: Ministry of Information and Communications, Nuku'alofa, 2010.
