Page 24 - IB May 2024

Why all Returns are
not distributed -
Reserves Matter

The FNPF provides a capital
guarantee to members (meaning
members’ funds will be safe). It,
therefore, needs an adequate
level of capital (reserves) to
ensure that it can honour this
guarantee. How do we do this?
The amount of capital required
to be held(reserved) increases
[decreases] as the risk in the
balance sheet (that is, the assets
liability mismatch) increases
[decreases]. The capital is reserved from the accumulated net It also contributes to meeting solvency requirements
surplus retained after distributing interest to members. imposed by our regulator- RBF. Reserves support the long-
At no point in time can the FNPF Board declare a negative term sustainability of the Fund by allowing it to plan for
interest rate. Since a negative crediting rate cannot be future contingencies and adapt to changing economic and
determined and since interest credited to member accounts demographic landscapes.
cannot subsequently be reduced or reversed, the Board must Reserves offer investment flexibility, allowing FNPF to
ensure that its interest rate determination does not threaten capitalise on opportunities and improve our investment
the solvency of the FNPF. portfolios without relying solely on member contributions or
Reserves are important for FNPF. Its serves as a vital tool liquidating existing assets. This is done to ensure higher returns
for risk management, providing a cushion against unforeseen for our members.
events or market fluctuations. Reserves facilitate smoothed Also worth noting is the fact that most super funds pass on
returns, enabling funds to mitigate volatility in investment losses to their members’ but FNPF does not.
returns and deliver more predictable outcomes to members,
particularly during turbulent market conditions such as the Stay tuned for further updates on our remarkable success
COVID-19 pandemic. journey!

Property portfolio - FNPF owns major assets around the country.

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24 Islands Business, May 2024