2014/2015 - rfb.torfb.to/anr/annualreport20142015te.pdf · - saia u. havili chief executive officer...

2014/2015

Annual Report

Fakamatala Fakata’u

R E T I R E M E N T F U N D B O A R D A N N U A L R E P O R T 2 0 1 4 / 2 0 1 5

CONTENTS

Fund Board Member’s 1

Retirement Fund Board Staff 2

Vision, Mission, Fund Objectives and Values 3

Chief Executive Officer's Statement 4

Financial Statements 18

F I N A N C I A L H I G H L I G H T S 2 0 1 4 / 2 0 1 5

2014 / 2015 2013 / 2014

Total Net Assets Available to Pay Benefits

Total Net Assets

Contributions

$

126,154,455

$

115,718,525

Total Contributions 11,799,475 16,848,805

Voluntary Contributions 485,623 517,285

Total Investment Returns

Net Interest on Investments 5,757,524 5,704,969

Retirement Benefit Payments

Total Benefit Payments 6,022,912 6,278,080

Number of Retirees 223 129

Fund Earning Rates 4.75% 5.25%


FUND BOARD MEMBER’S

SIONE FOLAU LOKOTUI

Members Representative

MANU ‘AKAU’OLA

Members Representative HONOURABLE Dr. ‘AISAKE V. EKE

Minister of Finance and National Planing

HEKISOU FIFITA

Members Representative

HONOURABLE SAMIU KUITA VAIPULU

Former Deputy Prime Minister

LORD TU’IVAKANO

Former Prime Minister / Chairman

SAIA UAI HAVILI

Secretary

HONOURABLE SIAOSI SOVALENI

Deputy Prime Minister

HONOURABLE SAMIUELA ‘AKILISI POHIVA

Prime Minister / Chairman

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Filled Posts

Retirement Fund Board

- Saia U . HaviliChief Executive Officer

Michael A. Bloom field Deputy Chief Executive Officer

Sione PolotaFinance Manager

Melesia PaluOperations Manager

Principal Operations Officer(Vacant)

‘Afa MakahununiuViliam i Vaka

Driver/Messenger

Tapukitea Tam aleSenior Investment Analyst

Personal Assistant (vacant)

Sem isi LangiSystems Administrator

Tevita C . MatotoICT Manager

Legal Advisor(outsource)

Accountant (Vacant)

Kaho ‘OfaPrincipal Investment Officer

Principal System s Adm inistrator

(Vacant)

Investm ent Analyst(Vacant)

Key

Vacant Posts

Operations Officer (vacant)

‘Ofaloto VaipuluSenior Operations Officer

Tevita VaoTevita Tu’itupou

Operations Officer Grade I

‘Iunisi L iuSenior Loan Officer

Sione TaufaLoan Officer

Loan Officer Grade I

(Vacant)

‘Anitoni Mo’ungaloaSenior Loan Officer

Kathlyn Moala (Vv)- U inise Fakava

- Lisita Maum auSuperannuation Officer

Grade III

W aller FifitaSenior Superannuation

Officer

Uinisieti Heim uli(shared duties with Finance)

Superannuation Office r

Superannuation Officer Grade I

(vacant)

-Fe’ofa’aki Fusikata (shared duties with

Finance)-Superannuation Officer

Officer Grade II

Senior System s Adm inistrator (Vacant)

Principal Accountant(Vacant)

Meliam e FinauSenior Accountant

System s Adm inistratorGrade I

(Vacant)

Risk/ Com pliance Officer (vacant)

RETIREMENT FUND BOARD STRUCTURE AND STAFF

Back Row: Mr. Semisi Langi, Mr. Sione Polota, Mr. Kaho ‘Ofa, Mr. Fe’ofa’aki Fusikata, Mr. Viliami Vaka, Mr. Sione Taufa, Mr. ‘Anitoni

Mo’ungaloa, Mr. Tevita Vao, Mr.Tevita Kaua Matoto, Mr. Waller Fifita, Mr. Samiuela Vao

Front Row: Miss. Kathylyn Moala, Miss. Meliame Finau, Miss.Tapukitea Tamale, Miss.Uinise Fakava, Mrs. Melesia Palu, Mr. Saia Havili, Mr.

Michael Bloomfield, Mrs. ‘Iunisi Liu, Mrs. Lisita Maumau, Mrs. ‘Ofaloto Vaipulu, Mrs Uinisieti Heimuli

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VISION, MISSION, FUND OBJECTIVESAND VALUES

VISION Our vision is that Member’s of the Fund will enjoy a reasonable standard of living in retirement.

MISSION Our Mission is to ensure Member’s life-time savings are secured for their retirement through sound

management and prudent investment.

VALUES Service Excellence

Accountability for Member’s Funds

Corporate Integrity

Excellent decision-making and communication

Our People

Teamwork

FUND OBJECTIVES The Fund core functions are:

Collecting and accounting of the Member’s contribution/information;

Processing and providing of the Member’s benefits under the relevant provision of the Retirement

Fund Act, regulations and procedures;

The investment of the excess fund (available cash) held by the Fund.

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INTRODUCTION

It is with great pleasure that I report on the performance of the Retirement Fund Board at the end of its 16th year

of operations,as at 30th June 2015. During the year, the Fund continues to develop and review its core functions and policies in growing, protecting and preserving value of the Members' savings, given the impact of the global financial crisis and the country's slow economic activity.

Investment management and limited investment opportunities in the domestic market coincide with a highly volatile offshore market continues to be the major challenges faced by the Fund during the year. Moreover, the domestic market, with its continual very high liquidity level, resulting in a monthly average level of over $163.4 million peaking at a record high of $179.5 million, contributes to the maintenance of Bank deposit interest rates to as low as 0.50% per annum.

Term investments has been the Fund's main investment asset class, with an asset allocation average of approximately 60% for the last three years. The continual decline in the Bank's interests offered on term investments and Government's commitment to settle outstanding transfer values, has greatly influenced the investment objective of crediting real returns to Members.

During the year, the Fund Board approved the introduction of two new investment asset classes, Property and Public Loans Investment Scheme.Further the Fund Board approved to reduce the SLIS interest rate from 7.5% to 6.4% per annum. In addition, the Fund Board also approved to increase the Government Bond maximum investment allocation from 10% to 20% given the investment opportunity in the domestic bond market.

As a result of Fund performance for the 2014/2015 Financial Year, the Fund Board declared 4.75% to be credited to Members' accounts as at 1

st July 2015, whilst the average annual rise in price (CPI) for the same

period is 0.10%, thus the Fund continues to achieve its investment target of crediting an interest rate to Members' accounts which is1% above CPI in a three year rolling period.

Given the Fund's current growth strategy, the Fund continues to maintain its administration costs below the mandated 1.8% Management Expenditure Ratio (MER) benchmark. The 2014/2015 MER is 0.94%. Further, Members' Life Insurance Premium unit costs has been reduced from $4.56 to $4.37 per $1,000 of Salary. In persuing the Fund's commitment to growing Members' funds whilst reducing costs, the Fund Board approved for administration costs and insurance premiums to be deducted from interests earned on Fund investment activities. This is a departure from the status quo which currently requires the deduction of administration costs and insurance premiums be effected from employer contributions.Appropriate submissions has been tabled with Government for necessary due process and amendments to the Retirement Fund Act and Regulation therefore legally formalising the above mentioned departure. The proposed departure will ensure Fund costs are recouped from investment earnings rather than employer contributions thus maximising Members' benefits.

The Fund's Net Assets as at 30th June 2015, was recorded at $126.15 million, highlighting an average growth

rate of 9.07% during the last sixteen (16) years of operations.This growth rate was possible due to an average annual growth rate of 13.75% in Member contribution revenue,1.62% in membership and 8.16% in return on investments.

The formation of the new Government welcomed two new employer representatives to the Fund Board, Honourable Samiuela ‘Akilisi Pohiva, Prime Minister and Fund Board Chairman, and Honourable Siaosi Sovaleni, Deputy Prime Minister.

Despite the economic challenges and Fund Board changes, the Fund's performance continues to be stable and resilient in an economic environment of high liquidity and minimal economic activity. Irrespective of these challenging conditions, the Fund Board and Management are committed to ensuring Members' life time savings are secured for their retirement through sound management and prudent investments.

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A review of the Fund’s performance for the financial year ending 30th June 2015 is presented below.

OVERVIEW OF OPERATIONS

OPERATIONS AND FINANCE

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Number of Retirees and Benefit Payments for the year ending at 30th

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Retirement Payments No. of Retirees

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Total Contributions and Members in the Fund as at 30th June

total contributions total members

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Members Accrued Benefit as at 30th June

Membership

This year, 403 new Members' were admitted,

bringing the total Membership of the Fund to

4,864 at 30th June 2015. This is an increase

of 5.08% compared to the previous year. This

figure includes Members on special leave

without pay. There were 1,033 Members who

have ceased service but whose retirement

entitlements are still administered by the Fund

until they reach retirement age or access

through the Early Release Grounds.

Contributions

Total contributions collected during the year

were $11.8 million – averaging $0.98 million

per month. This is a decrease of 29.9% from

the previous year’s collection of $16.8 million.

1,418 Members have opted to contribute

additionally above the mandatory 15%

contribution rate of Members' July Salary.

There was $485,623 in voluntary

contributions received this year compared to

$517,285 the previous year.

At balance date, no contributions receivable

was recorded.

Members’ Accounts

The total Members' balance for all Members

Accounts was $121.7 million as at 30th June

2015 compared with $ 111.2 million in 2014,

an increase by 9.4%.

Benefit Payments

This year, total benefit payments was $6.02

million, including allocated pension payments

compared to $ 6.28 million last year.

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Retirement

Members' that cease service and have attained retirement age (50-60 years) have the option of withdrawing their retirement benefits as a lump sum or as an allocated pension. This year, 48 retirement (attained retirement age) applications were approved, of these, 45 applicants chose to receive their retirement benefits as a lump sum payment whilst 3 retirees opted for an allocated pension. Total paid out was $2.9 million compared to $3.3 million the previous year.

Allocated Pension

The Fund continues to maintain $579,996 for 19 retirees who have opted for their retirement benefits to be managed by the Fund and to be allocated on certain terms and conditions. The Fund processed and paid out $214,954 to allocated pensioners during the year compared to $166,698 last year.

Death and Insurance Claims

$607,455 was paid out as Death Benefit this year as opposed to $455,925 last year. There were 18 insurance claims totaling $338,171 during the year compared to $191,246 (9 claims)last year.

Self-Managed Life Insurance

The self-managed life insurance scheme has surplus funds of $574,015 after its ninth year of operations with no outstanding claims at the end of the financial year. This represents an increase by 2.1% from $562,000 last year. The Self Managed Insurance Fund had a claim experience of 96.6% this year compared to 58.9% last year.

Total and Permanent Disablement

During the preceeding three (3) years, the Fund did not receive applications under this provision.

Early Release

These encompass withdrawals for cease service on redundancy, medical ground, rollover and financial hardship. On financial hardships, the Fund Board approved the following conditions as circumstances of hardship: migration (Condition No.1), deferred medical (Condition No.2), attained retirement age and facing foreclosure of home mortgage (Condition No.3), cease service and facing severe financial hardship (Condition No.4) and cease service and facing foreclosure of home mortgage (Condition No.6). The total paid out this year was $1.41 million compared to $1.45 million in 2014. This represents a slight decrease from previous year.

Nominations of Beneficiary

Fifty (50) Nominations of Beneficiaries were received during the year.

Management and Administration Costs

The Fund has achieved a management expenses ratio (MER) of 0.94 percent (%) as compared to 0.93 percent (%) last year. Again, rigid expenditure control measures and efficient utilization of resources have enabled the Fund to keep its expenses below 1.8 percent (%) of the average total net assets benchmark. This was achieved despite the continuous challenges of rising prices (inflation).

55%

12%

14%

19%

Benefit Paid Attained retirement age

Death benefit

Early Release

Early Release -Financial Hardship

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The total management and administration costs were $1,135,161 as at 30th June 2015 compared with

$1,001,135 in 2014, an increase of 13.3% due to increase in personnel, travel and other costs.

Member Services & Awareness

A major focus of our service is creating awareness on the importance of saving. Members are ensure financial security upon retirement. The Fund continues with its regular TV/Radio programs, induction seminars and Member visits. The Fund also uses a wide range of services including the Fund’s website (www.rfb.to) to re-establish contact with Member’s who have left the Service to keep them up-to-date with issues concerning the Fund. All application forms and Annual Reports are also available on the website. The Government Representatives Office in the Niua’s and Eua and the Governor’s Office in Ha’apai have been valued partners in the provision of

member service and communication to Member’s in the outer islands.

Temporary Office

The Dupincia Lodge Buildings continues to be the temporary office of the Fund until the Fund Administration Building project is finalised.

Policy

All Fund Policies are reviewed regularly, however no major changes were made to Fund Policies during the 2014/2015 Financial Year.

.

INVESTMENT

Asset Allocation

The Fund’s Total Asset Allocation totalled

$123,327,202 at the end of June 2015.This

represents a 7.4% growth from the end of June

2014. The Asset allocation total is represented by

$31,893,858 in Cash Deposit, $38,672,329 in Fixed

Term Deposits, $14,963,000 in Government Bonds,

$14,008,271 in Government of Tonga Transfer

Value & Accrued Interest and $23,789,743 in the

Members’ Small Loan Investment Scheme (SLIS).

The asset allocation for the year ended 30th June

2015 is displayed in the table below.

Table 1: Asset Allocation 2014/2015

The Board noted that due to the limited feasible

investment opportunities available in the domestic

market, there is high concentration risk in the Cash

and Fixed Term Deposits with a combined 57% of

the Asset Allocation; this is an increase from the

55% in the past year. This increase is a result of the

portfolio’s diversification into SLIS (Small Loan

Investment Schemes).

The Fund Board continues to persue its commitment

in diversifying into other feasible asset classes

through a disciplined rebalancing program in the

coming financial year 2015/2016.

Investment Targets

The Fund’s long term investment objective is to

provide real returns to its Members. This guarantees

security of real value on the Member’s life time

savings whist in service and anticipating retirement.

Table 2: Fund Earning Rate Vs Inflation

Note: All quoted figures above are in percentage (%)

Investment Returns and Fund Earning Rates

The Investment returns for the year was $5,995,311

compared with $5,973,387 the previous year. The

slight increase was due to the increasing revenue

from term deposits and SLIS. The Board declared

4.75% as the Fund Earning Rate as at 1st July 2015

to be distributed to Member’s for 2014/2015. This is

a decrease from the 5.25% in 2014

$ % $ %

Domestic Investment Portfolio 123,327,203 100% 114,828,862 100%

Cash / Demand Deposits 31,893,858 26% 27,090,925 24%

Fixed Term-Deposits 38,672,329 31% 37,122,445 32%

Government Bonds & Notes 14,963,000 12% 7,497,000 7%

Loans 23,789,744 19% 19,810,468 17%

Property - 0% - 0%

Transfer Value 14,008,271 11% 23,308,023 20%

Offshore Investment Portfolio - 0% - 0%123,327,203 100% 114,828,862 100%

FY 2014/2015 FY 2013/2014

TOTAL

FY Ending June 2011 2012 2013 2014 2015

3 Year Average Fund Earning Rate 7.6 6.9 6.5 6.0 5.4

3 Year Rolling Inflation 4.4 3.7 3.3 2.1 1.0

Fund Earning Rate 6.6 6.6 6.2 5.25 4.75

Net Real Returns Over Inflation +3.2 +3.3 +3.1 +3.9 +4.4

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Term Investment

The Total Term Investment for the year ended 30th

June 2015 stood at $38,672,329 which is 31% of

the Funds Total Asset Allocation, a decrease from

the 32% of the previous year. This is invested in

Term Deposit Investments with the ANZ Bank taking

the largest share of 45%, 39% with Tonga

Development Bank and 16% with MBF Bank. There

was no term deposit investments held at the

Westpac Bank of Tonga due to unfeasible interest

rates quoted.

The fixed term deposit investments for the year

ended 30th June 2015 is displayed in the graph

below.

Graph 1: Fixed Term Deposit 2014/2015

The Fund’s Term Investments produced a weighted

average return of 4.4% at year ended 30th June

2015 with a weighted average maturity of 2.3 years.

Government Bonds & Notes

Government Bonds for the year ended 30th June

2015 stood at $14,963,000 or 12% of the Funds

Total Asset Allocation. This was invested with the

Government security register at the National

Reserve Bank of Tonga.

The Fund’s Bond investments produced a weighted

average return of 3.3% at year ended 30th June

2015 with a weighted average maturity of 2.8 years.

Transfer Value & Accrued Interest

The Transfer Value & Accrued Interest for the year

ended 30th June 2015 stood at $14,008,271 which is

11% of the Funds Total Asset Allocation. The

$14,008,271 consists of $8,678,386.27 of Transfer

value and $5,329,884.60 in accrued interests.

At the end of the financial year 2014/2015 the

Government transferred a total of $10,579,554.98

($4,387,633.70 in Transfer Value and

$6,191,921.28 in Interest).

Property

The Fund Board approved its first diversification into

property investment to build a new Fund

Administration Building to house its operations and

better serve its Member’s on its newly acquired

leasehold land at Kolofo’ou. The property is situated

at the corner of Mateialona and Railway Road,

Nuku’alofa. The above project will be classified as

property investment of the Fund.

The Fund Board appointed Kramer Ausenco

(Tonga) Limited as the Project Management

Company to oversee the activities of the project.

This project is currently scheduled to be completed

in late 2015. This is a revision from previous

schedules.

Small Loan Investment Scheme

The total portfolio for the Small Loan Investment

Scheme (SLIS) for the year ended 30th June 2015

stood at $23,789,743 which is 19% of the Fund’s

Total Asset Allocation. The total loan disbursement

for the financial year 2014/2015 was at $13 million

which is an average of $1 million per month. During

the year, the Fund Board approved the decrease of

SLIS interest rate from 7.5% to 6.4%.

Policy

The Fund continually reviews its investment policies

and strategies given the impact of the global

financial crisis and falling interest rates for term

deposits. The Fund continually investigates all

options that could increase returns to Member’s at

an acceptable level of risk. In this end the Fund

Board approved the initiation of discussions with

Tonga Cable Ltd for a loan from the Fund to finance

the extension of fibre optic cables to Ha'apai and

Vava'u.

The Board continues to closely monitor its

Investment and Credit Policy to provide the

framework for the management and credit risk

arising from the investment portfolio of the Board.

ANZ 45%

MBF 16%

TDB 39%

ANZ MBF TDB

Page|8


INFORMATIONS AND COMMUNICATIONS TECHNOLOGY (ICT)

Information Systems

ICT division continues reviewing the Fund information systems to ensure it remains in alignment with regulatory

framework, policies and operational requirements of the Fund.

FAS and LMS continually assessed and updated to meet with the ongoing requirement of the operations of the

Fund with the aim to deliver its services to its members effectively and efficiently.

Infrastructure

ICT Division collaborated with both ISP (DigiNet and TCC) to create a redundant internet solution. This provide a redundant source of network communications which serves as a backup mechanism for quickly swapping network operations onto redundant infrastructure in the event of unplanned network outages.

Security

The Fund has strengthened its fight against cyber attack by implementing pfsend. PfSense offers a web interface for tcpdump that allows the downloading of the resulting pcap file when the capture is finished. This enables the Fund to capture packets on branch network, download the resulting capture file, and open it in Wireshark for analysis.

Data Recovery

To protect Fund Information Systems and sustain an acceptable level of service for an extended period of

time in the event of a disaster or any business interruption, backup has been constantly manage and

securely stored overseas and locally. Monthly backup is duplicate and stored on DVD’s and send to (1)

Tonga High Commission in Canberra, Australia, (2) Data Torque Ltd in Wellington, New Zealand. Monthly

Backup tapes are stored at the Defense Services Headquarter in Sene, Nuku’alofa. Weekly and Daily

backup tapes are stored in the RFB Fireproof Safe in-house.

CORPORATE SERVICES Human Resources

Fund's staff remains the most valuable asset of the Fund, with continual review of administration and personnel policies, a key strategy in the Fund’s endeavour to retain staff. During the year, two (2) staff members, joined the Fund: Ms. Uinise Fakava and Mrs. Lisita Maumau. They join the Fund as Superannuation Administrators (Gr. III).

Staff of The Retirement Fund mourned the loss of Mr. Tevita Seluini Tu'itupou, who passed away in a tragic accident in January 2015. Mr. Tu'itupou was

an employee of the Fund for 15 years. He is greatly missed by Staff and Members' of the Fund alike. 22 staffs were employed by the Fund as of June 30

th,

2015.

The Chief Executive Officer, Mr. Saia Uai Havili, successfully completed his Masters of Business Studies (Accountancy) from Massey University, Auckland, New Zealand. This scholarship was funded by the Tongan Government. He resumed duty, on the 2nd February 2015, returning to his duties as Chief Executive Officer of the Fund. During Mr. Havili's study leave of absence from the Fund, for the last two (2) years, Mr. Michael A. Bloomfield (Deputy Chief Executive Officer) carried out his duties as Acting Chief Executive Officer of the Fund. Staff Training and Development

The Board recognizes the contributions by its staff in achieving the results that are reported to its Members' and Employer through Parliament each year.

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The Fund requires all staff to undergo some form of professional development at least once a year, whilst selected staff are also granted the opportunity to attend international trainings and conferences to keep updated with current developments and industry practices.

The Fund was fortunate to gain the continuous assistance of the Government of Tonga, Commonwealth Secretariat and the Association of

Superannuation Fund of Australia (ASFA) with staff trainings and attachments. Fleet Management

As with the preceding year, the Fund has a total of five (5) vehicles with four (4) at the Head office, Tongatapu and one (1) at the Vava’u Office. .

CORPORATE GOVERNANCE

Policy Based Corporate Governance

The Fund, in accordance with its overarching philosophy of governance by policy, reviewed a number of policies during the year. They are the:

Fund Board Charter 2015 Personnel and Administrative Policy 2015

Financial Management Policy 2015

Investment Policy 2015

Credit Policy 2015

ICT Policy 2015

Auditor

The Fund Board for the third consecutive year

engaged the services of Charted Accounting Firm,

KPMG, Suva, Fiji for 2014/2015 audit.

The Fund auditor policy will be review every three (3)

years.

The auditor’s unqualified opinion on Fund Accounts

The Fund continues to prepare and submit its audited Financial Statement, together with its Annual Report to His Majesty Cabinet and Legislative Assembly within the prescribed time. Annual Business Plan and Estimates

The Board’s governance requires the Fund’s Annual Business Plan and Estimates for the next financial year to be submitted and approved by April every year. The Fund’s Annual Business Plan and Estimates for 2015/2016 financial year was approved by the 30

th

April 2015.

FUND BOARD The Board continues to maintain its equal representative governance model with three (3) Members each from Employer and Member. Representation of Members on the Fund Board ensures a balance in decision making, and a true understanding of the membership base. Further, a

decision of the Fund Board is of no effect if fewer than four (4) of the representatives vote for it, including two (2) Members representatives. The two-thirds voting rule ensure consensus decision-making in the majority of Fund Board decisions.

Employer Representatives

As a result of the appointment of new Government on

30th December 2014, the Fund Board bid farewell to

former Chairman, Lord Tu’ivakano and Deputy Prime

Minister, Honourable Samiu Kuita Vaipulu, and also

welcomed the new Prime Minister and Fund Board

Chairman, Honourable Samiuela ‘Akilisi Pohiva and

Honourable Siaosi Sovaleni, the new Deputy Prime

Minister.

While the Honourable Dr. ‘Aisake Valu Eke continues

as Minister of Finance and National Planning.

Page|10

2014/2015 was issued on 21st September 2015.

Annual Report


Member’s Representatives

The Member’s Representatives remained as Mr.

Sione Folau Lokotui (Ministry of Justice), Mr. Manu

‘A. ‘Akau’ola (Ministry of Education and Training) and

Mr. Hekisou Fifita (Ministry of Educations and

Training). Mr. Vilai ‘Ilolahia from Ministry of Education

and Training and Mrs. Losaline Ma’asi from the

Ministry of Agriculture, Fisheries & Forestry are the

current Alternate Member’s Representatives to the

Fund Board. Their four year term will end on 28th

October 2015.

Fund Board Meetings

The Fund Board continues to exercise good

governance principles in conducting its operations

and obligations to Member’s and stakeholders. The

Fund Board held seven (7) meetings during the

financial year. The Fund Board Charter requires that

Fund Board meet at least six (6) times in a financial

year, with authority to convene additional meetings,

as circumstances require.

Committees

The Committees of the Fund Board assist the Board

in scrutinizing and endorsing papers for Fund Board

consideration.

There are three (3) standing Fund Board Committees;

Governance and Compliance Committee, Election

Committee and Investment Committee. The

committee consists of the following Membership

structure. All Committees have written charters

stipulating purpose and responsibilities of each

Committee.

Governance and

Compliance

Committee

Investment

Committee

Election

Committee

Chairman Honourable Deputy

Prime Minister

Honourable

Minister of

Finance

Chief

Executive

Officer of

the Public

Service

Commission

Member’s

Member’s

Representatives

No.1 and No.3

Member’s

Representatives

No.1 and No.2

Solicitor

General

Chief Executive

Officer

Chief Executive

Officer

Deputy

Chief

Executive

Officer

Secretary

Office of the

Retirement Fund

Board

Head of

Investment

Division

Office of the

Public

Service

Commission

The Governance and Compliance Committee met five

(5) times during the financial year whilst the

Investment Committee met six (6) times. The Election

Committee did not hold a meeting during the year.

Disclosure of Fund Board Member Interest

Given the need to manage conflict of interest and

Member independence, the Fund Board continues to

declare their interest at the beginning of the financial

year and every Fund Board Meeting.

Delegations of Authority

During the year the Fund Board continues to delegate

some of its responsibilities to the Chief Executive

Officer, Committees and Fund Board Members and

report back to the Fund Board for noting to improve

efficiency and effectiveness.

Fund Board Professional Development

The Fund Board recognises the need for Fund Board

Member’s continual professional development. This is

an essential requirement due to the specialised and

dynamic nature of the superannuation industry.

During the year, Fund Board Members were

approved to attend the Association of

Superannuation Fund of Australia (ASFA) and

Australia Institute of Superannuation Trustee (AIST)

Annual Conferences.

Policy

The Retirement Fund Board’s administration is

governed by Acts and Regulations and Fund Board

Charters which outlines the role, responsibilities,

composition, Committees, meetings, and

remuneration of the Fund Board.

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ACKNOWLEDGEMENT

On behalf of Management and Staff, I sincerely wish to thank the Fund Board Chairman and Fund Board Members

for their vision, support and guidance during the year.

I also wish to convey my sincere thanks to all Retirement Fund Board Members' and Stakeholders for their support

and cooperation. The Fund appreciates your support and anticipates your continued assistance in ensuring that we

continually strive to lift our performance and service standards ensuring Fund Members' enjoy a reasonable

standard of living during retirement.

I must also thank the Government of Tonga for their continued support and contributions to the Fund and I sincerely

hope and pray that the Fund will reach even greater heights in years to come.

.

…………………………………..

Mr. Saia U. Havili

Chief Executive Officer

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T A B L E O F C O N T E N T S

1. Retirement Fund Board Report ..................................................................... ..................... 14-15

2. Statement by the Fund Board ....................................................................... .......................... 16

3. Independent Auditor Reports ........................................................................ .......................... 17

4. Statement of Net Assets .............................................................................. .......................... 18

5. Statement of Changes in Net Assets ....................................................................................... 19

6. Statement of Cash Flows .............................................................................. .......................... 20

7. Notes to and forming part of the Financial Statements ................................ .................... .21-34

Page|13

RETIREMENT FUND BOARD RETIREMENT FUND BOARD REPORT

The Fund board presents their report together with the financial statements of the Retirement Fund Board (the Fund) for the year ended 30 June 2015 and the auditor’s report thereon. FUND BOARD

The Fund board members during the financial year report and up to the date of this report were:

Prime Minister, Hon. Samiuela ‘Akilisi Pohiva (Chairman) - Appointed on 30/12/2014 Former Prime Minister, Lord Tu'ivakano (Former Chairman) – Term ended on 30/12/2014 Deputy Prime Minister, Hon. Siaosi Sovaleni - Appointed on 31/12/2014 Former Deputy Prime Minister, Hon. Samiu Kuita Vaipulu - Term ended on 30/12/2014 Finance Minister, Hon. Dr. ‘Aisake Valu Eke Mr. Sione Folau Lokotui (Members Representative) Mr. Manu ‘Aipolo ‘Akauola (Members Representative) Mr. Hekisou Fifita (Members Representative) OPERATIONS OF THE FUND

The Fund is a defined contribution fund and the operation of the Fund has been carried out in accordance with the provisions of the Retirement Fund Board Act 1998 and the Retirement Fund (Administrations) Regulations 1999. PRINCIPAL ACTIVITIES

The principal activities of the Fund are the provision of superannuation services to its members. There were no significant changes in the nature of these activities during the financial year. OPERATING RESULTS

The benefits accrued as a result of operations for the year ended 30 June 2015 amounted to a surplus of $10,410,941 (2014: $15,408,193). RESERVES

The Fund board approved the following transfers of reserves in the statement of changes in net assets during the year:

$12,015 (2014: ($133,634) to the insurance benefit reserve.

$1,161 (2014: ($172,646) to the general reserve. BAD AND DOUBTFUL DEBTS

The Fund board members took reasonable steps before the financial statements were made out to ascertain that all known bad debts were written off and adequate provision was made for doubtful debts. At the date of this report, the board members are not aware of any circumstances which would render the amount written off for bad debts, or the amount of the provision for doubtful debts, inadequate to any substantial extent. CURRENT ASSETS

The Fund board members took reasonable steps before the financial statements were made out to ascertain that the current assets of the Fund were shown in the accounting records at a value equal to or below the value that would be expected to be realised in the ordinary course of business. At the date of this report, the board members are not aware of any circumstances which would render the values attributable to the current assets in the financial statements misleading.

RELATED PARTY TRANSACTIONS

In the opinion of the board members all related party transactions have been adequately recorded in the books of the Fund.

OTHER CIRCUMSTANCES

At the date of this report, the Fund board members are not aware of any circumstances not otherwise dealt with in this report or financial statements which would render any amounts stated in the financial statements misleading.

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RETIREMENT FUND BOARD RETIREMENT FUND BOARD REPORT

FUND BOARD MEMBERS’ BENEFIT

No Fund board member has, since the end of the previous financial year, received or become entitled to receive a benefit (other than a benefit included in the total amount of emoluments received or due and receivable by Fund board members shown in the financial statements) by reason of a contract made with the Fund or a related corporation with the board member or with a firm of which the Fund board member is a member, or in a Group in which the Fund board member has a substantial financial interest.

EVENTS SUBSEQUENT TO BALANCE DATE

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the board members of the Fund, to affect significantly the operations of the Fund, the results of those operations, or the state of affairs of the Fund, in subsequent financial years. For and on behalf of the Fund Board …………………………………… ………………………………….. Honourable Siaosi Sovaleni Mr. Hekisou Fifita Acting Chairman Fund Board Member

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RETIREMENT FUND BOARD STATEMENT BY THE FUND BOARD

In the opinion of the Fund Board:

(a) the accompanying statement of changes in net assets is drawn up so as to give a true and fair view of the changes in net assets available to pay benefits for the year ended 30 June 2015;

(b) the accompanying statement of net assets is drawn up so as to give a true and fair view of the state of the affairs of the Fund as at 30 June 2015;

(c) the accompanying statement of cash flows is drawn up so as to give a true and fair view of the cash

flows of the Fund for the year ended 30 June 2015;

(d) at the date of this statement there are reasonable grounds to believe that the Fund will be able to pay its debts as and when they fall due; and

(e) all related party transactions have been recorded and adequately disclosed in the attached financial

statements; and

(f) the financial statements have been prepared in accordance with the provisions of the Retirement Fund Board Act., 1998 and International Financial Reporting Standards.

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Signed in accordance with a resolution of the Fund Board this day of 2015. …………………………………… ……………………………………. Honourable Siaosi Sovaleni Mr. Hekisou Fifita Acting Chairman Fund Board Member

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF RETIREMENT FUND BOARD

REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying financial statements of Retirement Fund Board (the “Fund”), which comprise the statements of net assets as at 30 June 2015, and the statements of changes in net assets and statements of cash flows for the year then ended, and Notes 1 to 18 comprising of a summary of significant accounting policies and other explanatory information.

FUND BOARDS’ AND MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Fund Board and management are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the Retirement Fund Board Act., 1998 and for such internal control as the Fund board members and management determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the financial position of the Fund as at 30 June 2015 and of their changes in net assets and cash flows for the year then ended in accordance with International Financial Reporting Standards.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

In our opinion:

i) proper books of account have been kept by the Fund, so far as it appears from our examination of those books;

ii) the financial statements are in agreement with the books of account; and

iii) to the best of our information and according to the explanations given to us the financial statements give the information required by the Retirement Fund Board Act., 1998 in the manner so required.

, 2015 KPMG

Suva, Fiji Chartered Accountants

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RETIREMENT FUND BOARD STATEMENT OF NET ASSETS AS AT 30th JUNE 2015

The statement of net assets is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 21 to 34

2015 2014

Notes $ $

Assets

Investments

Held to maturity 7 53,635,329 44,619,445

Transfer value accounts 8 8,678,386 13,019,200

Loans and advances 9 23,789,743 19,810,468

86,103,458 77,449,113

Other assets

Cash and cash equivalents 10 31,893,858 27,090,925

Interest receivables 11 6,131,956 11,023,708

Other receivables 2,650 192,289

Property plant and equipment 12 2,182,189 173,473

40,210,653 38,480,395

Total assets 126,314,111 115,929,508

Liabilities Sundry creditors 140,221 162,484

Employee entitlements 13 19,435 21,296

Deferred income - 27,203

159,656 210,983

Net assets available to pay benefits 14 126,154,455 115,718,525

Represented by:

Members accrued benefits 14(a) 121,689,124 111,259,110

Pension accrued benefits 14(b) 579,996 612,245

General reserve accounts 14(c) 3,885,335 3,847,170

Total members fund 126,154,455 115,718,525

Signed in accordance with a resolution of the Fund board.

_________________________________

Honourable Siaosi Sovaleni Acting Chairman

Mr. Hekisou Fifita Fund Board Member

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RETIREMENT FUND BOARD STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED 30 JUNE 2015

The statement of changes in net assets is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 21 to 34

2015 2014

Notes $

$

Investment income

Interest revenue 5 5,995,311 5,973,387

Less: direct investment expenses (270,019) (287,004)

Net return on investment activities 5,725,292 5,686,383

Other revenue 32,232 18,586

5,757,524 5,704,969

Contributions revenue

Employer contributions 7,335,694 6,333,375

Members contributions 4,306,280 3,940,042

Pension contributions 150,000 436,242

Transfer value contributions 7,501 6,139,146

11,799,475 16,848,805

Life insurance proceeds 14(c) 350,186 324,880

Total Revenue 17,907,185 22,878,654

Benefits paid 16 (6,022,912) (6,278,080)

Expenses

General administration expenses 6 (1,135,161) (1,001,135)

Life insurance expense 14(c) (338,171) (191,246)

(1,473,332) (1,192,381)

Net change for the year before income tax 15 10,410,941 15,408,193

Income tax expense 3(k) - -

Net change for the year after income tax 10,410,941 15,408,193

Net assets available to pay benefits at the beginning of the financial year

115,718,525 100,310,332

Reclassification from deferred income to general reserve

24,989

-

Net assets available to pay benefits at the end of the financial year

14 126,154,455 115,718,525

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RETIREMENT FUND BOARD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2015

2015 2014

Note $ $

Cash flows from Operating activities:

Contributions received

Employers 7,335,694 6,328,004

Members 4,456,280 4,381,655

Interest received 10,887,063 5,945,538

Life insurance proceeds 350,186 324,880

Transfer value proceeds 4,348,315 201,381

Other income 219,657 (175,251)

Benefits paid to members (6,022,912) (6,278,080)

Life insurance claims 14(c) (338,171) (191,246)

Payments to suppliers and employees (1,389,991) (1,227,426)

Net cash from operating activities 19,846,121 9,309,455

Cash flows from Investing activities:

Acquisition of property, plant and equipment (2,048,029) (73,605)

Disbursements of loans net 9 (3,979,275) (7,831,802)

Proceeds of term deposits net (9,015,884) 5,019,179

Net cash from investing activities (15,043,188) (2,886,228)

Net increase in cash and cash equivalents held 4,802,933

6,423,227

Cash and cash equivalents at the beginning of the

financial year

27,090,925

20,667,698

Cash and cash equivalents at the end of the

financial year

31,893,858

27,090,925

The statement of changes in net assets is to be read in conjunction with the notes to and forming part of the

financial statements set out on pages 21 to 34

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015

1. REPORTING ENTITY

The Retirement Fund Board (the “Fund”) is a superannuation fund domiciled in the Kingdom of Tonga. The Fund is constituted by Section 3 of Retirement Fund Board Act 1998 to provide retirement benefits to public servants. The address of the Fund’s registered office is Level 1 Dupincia Building, Corner of Vuna & Alaivahamama'o Road, Nuku’alofa.

The financial statements were approved by the Fund Board on ………………………….

2. BASIS OF PREPARATION

(a) Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with International Accounting Standard IAS 26, other applicable International Accounting Standards, and the requirements of the Retirement Fund Board Act, 1998.

International Financial Reporting Standards (“IFRS”) form the basis of International Accounting Standards adopted by the IASB.

(b) Basis of measurement

The financial report is presented in Tonga Pa’anga, which is the Fund’s functional currency, rounded to the nearest dollar and has been prepared on the basis of historical costs.

(c) Use of estimates and judgments

The preparation of financial statements in conformity with IFRSs requires management to make

judgments, estimates and assumptions that affect the application of accounting policies and the reported

amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimates are revised and in any future periods

affected

. (d) Changes in accounting policies and disclosures

The following new standards and amendments to standards relevant to the Fund have been issued. The Fund does not intend to apply these standards until their effective dates.

IFRS 9 Financial Instruments replaces part of IAS 39 Financial Instruments:

IFRS 9 Financial Instruments replaces part of IAS 39 Financial Instruments: Recognition and Measurement and will be mandatory for the Fund’s financial statements for the year beginning 1 July 2015.

IFRS 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. IFRS 9 permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not traded.

The Fund is in the process of evaluating the potential effect of this standard.

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3. SIGNIFICANT ACCOUNTING POLICIES

(a) Foreign currency transactions

Transactions in foreign currencies are translated to Tonga Pa’anga at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Tonga Pa’anga at the exchange rate at that date. The foreign currency gains or losses on translation are recognised in the statement of changes in net assets.

(b) Cash and cash equivalents

For cash flow statement presentation purposes, cash and cash equivalents includes deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less from the date of acquisition that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(c) Other receivables

Other assets comprise of receivables from employees with respect to surcharges and prepayments and are stated at cost.

(d) Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses.

Historical cost includes expenditure that is directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in the statement of changes in net assets.

Subsequent expenditure

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefit embodied within the part will flow to the Fund and its cost can be measured reliably. The cost of the day-to-day servicing of plant and equipment is recognised in the statement of changes in net assets as incurred.

Depreciation

Items of property, plant and equipment are depreciated using the straight line method, at rates which will write off the costs of those assets over their expected useful lives. The method of write off and the rates used are those considered appropriate to each class of asset. The annual depreciation rates are as follows:

Depreciation rates

Office furniture and equipment 20%

Motor vehicles 20 %

Computer equipment 20% - 33%

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(e) Financial assets

Financial instruments comprise investments in government and other fixed interest securities, term deposits, cash and cash equivalents and loans and advances. The Fund classifies its financial assets in the following categories: held to maturity and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Financial instruments are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

(i) Non-derivative financial assets

The Fund initially recognises loans and advances on the date they are originated. All other financial

assets (including assets designated as at fair value through the statement of changes in net assets) are

recognised initially on the trade date, which is the date that the Fund becomes a party to the contractual

provisions of the instrument. Any interest in such financial asset that is created or retained by the Fund is

recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial

position when, and only when, the Fund has a legal right to offset the amounts and intends either to settle

them on a net basis or to realise the asset and settle the liability simultaneously.

The Fund classifies non-derivative financial assets into the following categories: held to maturity and

loans and receivables.

Held to maturity financial assets

Held to maturity investments are non-derivative financial assets with fixed or determinable payments and

fixed maturities that the Fund’s management has the positive intention and the ability to hold to maturity,

other than those that meet the definition of loans and receivables.

These are initially recognised at fair value including direct and incremental transaction costs and

measured subsequently at amortised cost, using the effective interest method. Term deposits,

government securities and other fixed securities are included under this category.

Loans and advances – Small loan investment scheme (SLIS)

SLIS was established to enhance the member’s livelihood during their working life and appropriate

diversification of the Fund’s investment portfolio. Members are eligible to take a loan from the Fund not

exceeding 50% of the lower of their Leaving Service Benefit or the total of Member Basic Account and

Member Voluntary Account on the date of application.

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an

active market. Such assets are initially recognised at fair value plus any directly attributable transaction

costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the

effective interest method, less any impairment losses.

Members’ loans and advances are carried at principal balances outstanding. Interest income is brought to account on an accrual basis. The loans are secured against the members’ contributions to the Fund.

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(f) Impairment

(i) Non-derivative financial assets

A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to

determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is

objective evidence of impairment as a result of one or more events that occurred after the initial

recognition of the asset, and that loss event(s) had an impact on the estimated future cash flows of that

asset that can be estimated reliably.

For an investment in an equity security, a significant or prolonged decline in its fair value below its cost is

objective evidence of impairment.

(ii) Financial assets measured at amortised cost

As the loans and advances of the Fund are secured against the members’ contributions there is no impairment recorded in respect of these loans and advances. The loans and advances balance of a member does not exceed 50% percent of the contribution balance at any point in time.

(g) Sundry creditors and accruals

Sundry creditors and accruals are stated at cost. A provision is recognised in the statement of financial position when the Fund has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

(h) Employee benefits

Wages, Salaries and Employee entitlements

Liabilities for wages, salaries and employee entitlements are recognised and are measured as the amount unpaid at the reporting date at current pay rates in respect of employees' services provided up to the reporting date.

(i) Revenue

Interest income

Interest income earned from held to maturity investments such as term deposits and members’ loans are brought to account on an accrual basis. Fees and surcharges

Fees and surcharges comprising of loan application fee and surcharges on member contributions are recognised on an accrual basis, when related services have been provided to the members.

(j) Expense recognition

Benefits paid

Benefits paid include member withdrawals, pension payouts and other member payments. These are recognized upon payment of such benefits.

Other expenses

Expenses are recognised in the statement of changes in net assets is on an accrual basis.

(k) Income tax

The Retirement Fund is exempt from income tax under section 22 of the Income Tax Act 2007. The Fund is a certified approved Fund by the Chief Commissioner of Revenue and Customs.

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(l) Contributions

Contributions from employers and members are recorded on a cash basis. The amount of contributions for an employee for a month is equal to 15% of the total wages payable to the employee for the month. The contribution is paid by a 5% deduction from the total wages of the employee and 10% by the employer. A member may contribute additional amounts at such an amount as the member determines.

(m) Liability for accrued benefits

The liability for accrued benefits represents the Fund’s present obligation to pay benefits to members and beneficiaries and is determined on the basis of the expected future payments which arise from the membership of the Fund up to the reporting date.

(n) Pension accrued benefits

The liability for pension accrued benefits represents the Fund’s present obligation to pay benefits to retirees and beneficiaries and is determined on the basis of the expected future payments which arise from the membership of the Fund up to the reporting date.

(o) Insurance fund

Receipts and payments for the insurance policy for self-managing the life insurance scheme are processed directly from the Fund, and any excess of Fund assets over the liabilities are reported separately in the statement of changes in net assets. Transactions are recognized on a cash basis.

All members are insured on a Group Life Insurance Scheme which is self managed by the Fund. The insured amount is equal to the member’s salary as at the July review date.

4. FINANCIAL RISK MANAGEMENT

4.1 FINANCIAL RISK FACTORS

Introduction

The Fund is committed to the management of risk to achieve sustainability of service to its members, employment of its staff and net surplus attributable to members and, therefore, takes on controlled amounts of risk when considered appropriate.

The Fund has exposure to the following risks:

Market risk

Liquidity risk

Credit risk

The Fund Board has the overall responsibility for the establishment and oversight of the Fund’s risk management framework. The Fund’s risk management policies are established to identify and analyse the risk faced by the Fund, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Fund’s activities. The following sections describe the risk management framework components:

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4. FINANCIAL RISK MANAGEMENT

4.1 FINANCIAL RISK FACTORS (CONTINUED)

Market risk

The Fund’s operations are subject to the risk of interest rate fluctuations to the extent that investments re-price at different times or in differing amounts. Risk management activities are aimed at optimising gain on investment; given market interest rate levels are consistent with the Fund’s business strategies.

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

To mitigate market risk, the Fund undertakes all investment decision making and ensures it has appropriate expertise and skill for monitoring market conditions and benchmark analysis.

i. Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Fund has no currency risk exposure on its financial instruments as all financial instruments are dominated in the functional currency (Tonga Pa’anga).

ii. Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The majority of the Fund’s financial instruments are interest-bearing with cash and cash equivalents, fixed interest securities and loans and advances being directly subject to interest rate risk. Any excess cash and cash equivalents above immediate working capital requirements are invested in short-term deposits which are available at call to optimise returns. Interest on loans and advances are fixed for the term with the maximum term of any loan being three years. As a result, the Fund is subject to limited exposure to interest rate risk due to fluctuations in the prevailing levels of market interest rates. For re-investment of short and long term cash deposits, the Fund negotiates an appropriate interest rate with the banks and invests with the bank which offers the highest interest return. For fixed interest securities, the prices and terms are usually set by the issuer and the terms are determined and agreed at the start. Terms for loans and advances are set by the Fund and agreed at the start. The Fund’s interest rate risk is monitored on a daily basis by the Investment Manager in accordance with the policies and procedures in place including monitoring of exposure to interest rates and assessment of actual interest rates against the relevant benchmarks. The Investment Manager also has the authority to maximise returns through the transfer of excess cash to short-term deposits. All transfers require dual authorisation from the Investment Manager and Chief Executive Officer. Currently all cash assets are held with domestic financial institutions.

Fair value sensitivity analysis for fixed rate instruments

The Fund does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss.

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4. Financial risk management

4.1 Financial risk factors (continued)

Market risk

ii. Interest rate risk

At the reporting date the interest rate profile of the Fund’s interest-bearing financial instruments was:

Fixed Interest bearing instruments 2015

$ 2014

$ Cash and cash equivalents 31,893,858 27,090,925 Loans and advances 23,789,743 19,810,468 Transfer value accounts 8,678,386 13,019,200 Held to maturity investments 53,635,329 44,619,445

117,997,316 104,540,038

Liquidity risk

Liquidity risk is the risk that the Fund will not be able to meet its financial obligations as they fall due. The Fund’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Fund’s reputation. It is the Fund’s policy to have liquid assets greater than anticipated withdrawals. The Fund’s Act provides for the daily withdrawal of benefits and it is therefore exposed to the liquidity risk of meeting members withdrawals at any time.

To control liquidity risk in terms of member withdrawals, the Fund has implemented measures to restrict withdrawals for certain benefits only. The major portion of the member withdrawals is retirement which is controlled by maintaining adequate cash in the general operating account. The Fund also holds term deposits that are at call in cases of liquidity issues.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Fund is subject to credit risk through its lending and investing activities.

The Fund’s primary exposure to credit risk arises through its loans to members. The amount of credit exposure in this regard is represented by the carrying amounts of the assets on the statement of net assets. Lending standards and criteria are defined for loans provided to members of the Fund. The Fund relies primarily on the integrity of members and their ability to meet the obligations to the Fund. The security held against the loan exposure is the balance of funds in the member’s account held by the Fund. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

2015

$ 2014

$ Cash and cash equivalents 31,893,858 27,090,925

Loans and advances 23,789,743 19,810,468

Interest receivable 6,131,956 11,023,708 Transfer value accounts 8,678,386 13,019,200 Held to maturity investments 53,635,329 44,619,445

124,129,272 115,563,746

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4. Financial risk management (continued)

4.1 Financial risk factors

Credit risk (continued)

The table below summarises the ageing of loans and advances of the Fund as at 30 June 2015 based on contractual discounted amounts:

The table below presents the maturity profile of held to maturity investments of the Fund as at 30 June 2015 based on contractual discounted amounts:

4.2 CAPITAL RISK MANAGEMENT

The Fund’s objectives when obtaining and managing capital are to safeguard the Fund’s ability to continue as a going concern and provide shareholders with a consistent level of returns.

The Fund currently does not engage in borrowings and as such is not exposed to any capital risk. As a matter of practice, borrowing facilities available to the Fund will be utilised only as a last resort.

2015 $

2014 $

5 INTEREST REVENUE

Term deposits 2,052,604 1,883,208 Loans and advances 2,499,073 2,464,417

Transfer value 1,272,252 1,355,850

Other interest income 171,382 269,912

5,995,311 5,973,387

6 GENERAL ADMINISTRATION EXPENSES

Auditors’ remuneration 19,000 41,743 Board expenses 116,101 90,333 Depreciation 39,313 61,608 Personnel expenses 529,410 485,939

Travel expenses 101,313 66,728

Communications expenses 19,898 36,535 Utilities 27,635 33,177 Office expenses 128,306 232,834

0 – 3 months

3-12 months

1-2 years

2-3 years

$ $ $ $

30 June 2015 3,689 259,659 2,132,415 21,393,980

30 June 2014 3,702 262,544 1,510,399 18,033,823

0-3 months

3-12 months

1-2 years

2-5 years

$ $ $ $

30 June 2015 1,113,125 11,508,173 9,417,833 32,919,975

30 June 2014 3,226,851 7,136,738 8,369,547 27,262,247

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2015 $

2014 $

6 GENERAL ADMINISTRATION EXPENSES (CONTINUED)

Rent expense 133,440 121,200

Other expense 20,745 36,715

1,135,161 1,001,135

7 Held to maturity investments

Term deposits 38,672,329 37,122,445

Government bonds 14,963,000 7,497,000

53,635,329 44,619,445

8 Transfer value accounts

This represents the Members’ benefit entitlements transferred from the Civil Service Pension Scheme as at 30 June 1999. These Accounts are still to be funded by the Government and, therefore, accumulate interest at 6 percent (%) per annum since 1 July 1999. (Section 2 of the Retirement Fund (Administration) Regulations 1999).

Transfer value accounts 8,678,386 13,019,200

Interest receivable 11 5,329,885 10,288,823

14,008,271 23,308,023

9 Loans and advances

Balance at beginning of the year 19,810,468 11,978,666

Add: Disbursement during the year 13,695,670 15,175,600

Less: Repayment during the year (9,200,769) (6,854,750)

Set-off during the year (515,626) (489,048)

Provision for loan losses - -

Net Disbursement/(Repayment) 3,979,275 7,831,802

Balance at the end of the year 23,789,743 19,810,468

10 Cash and cash equivalents

Cash and cash equivalents 31,893,858 27,090,925

11 Interest receivable

Term deposits 802,071 734,885

Transfer value 8 5,329,884 9,687,377

Small loan investment scheme - -

6,131,956 11,023,708

Page|29


12 PROPERTY PLANT AND EQUIPMENT

Motor Vehicles

$

Office furniture

& equipment

$

Computer equipment

$

Work in

progress $

Total $

Cost Balance at 1 July 2013 111,089 174,454 180,757 54,500 520,800 Acquisitions - 9,327 8,905 55,373 73,605 Disposals - (6,940) - - (6,940)

Balance at 30 June 2014 111,089 176,841 189,662 109,873 587,465 Acquisitions 64,622 13,771 18,940 1,950,694 2,048,029 Disposals - - - - -

Balance at 30 June 2015 175,711 190,612 208,602 2,060,567 2,635,494

Depreciation Balance at 1 July 2013 75,890 143,091 148,445 - 367,426 Depreciation charge for the year 14,900 13,656 24,950 - 53,506 Disposals - (6,940) - - (6,940)

Balance at 30 June 2014 90,790 149,807 173,395 - 413,992 Depreciation charge for the year 14,569 13,451 11,291 - 39,311 Disposals - - - - -

Balance at 30 June 2015 105,359 163,258 184,686 - 453,303

Carrying amount At 1 July 2013 35,199 31,363 32,312 54,500 153,374

At 30 June 2014 20,299 27,034 16,267 109,873 173,473

At 30 June 2015 70,352 27,354 23,916 2,060,567 2,182,189

Note 2015

$ 2014

$ 13 EMPLOYEE ENTITLEMENTS

Annual leave 19,435 21,296

Balance at 1 July 21,296 11,402 Expense recognized in the statement of changes in net assets (1,861) 9,894 9,894

Balance at 30 June 19,435 21,296

14 NET ASSETS AVAILABLE TO PAY BENEFITS

Net assets available to pay benefits 126,154,455 100,310,332

Represented by:

Liability for accrued benefits (a) 121,689,124 111,259,110 Pension accrued benefits (b) 579,996 612,245 General Reserve Accounts (c) 3,885,335 3,847,170 126,154,455 115,718,525

Page|30


Notes

2015

$

2014

$

14 NET ASSETS AVAILABLE TO PAY BENEFITS (CONTINUED)

(a) Liability for accrued benefits

Balance at the beginning of the year 111,259,110 96,446,831

Add transfers from statement of changes in net assets 10,430,014 14,812,279


Allocation of benefits

Allocated to members’ accounts 115,924,737 105,673,034

Unallocated to members’ accounts 5,764,388 5,586,076

121,689,124 111,259,110

(b) Pension accrued benefits

Balance at the beginning of the year 612,245 322,611

Add transfers from statement of changes in net assets

Transfers in 150,000 436,242

Transfers out (182,249) (146,608)

(32,249) 289,634

Balance at the end of the year 579,996 612,245

This account was established to account for retirees who choose the allocated pension product and continue to be maintained and managed by the Fund and allocated according to the terms and conditions agreed with the retiree.

(c) General reserve account

General reserve account (GRA) 3,885,335 3,847,170

GRA comprise the following reserves:

Life insurance reserve 574,015 562,000

Investment fluctuation reserve 1,718,038 1,718,038

General reserve 1,593,282 1,567,132

3,885,335 3,847,170

The movement in the above reserves are as follows:

Life insurance reserve

Balance at the beginning of the year 562,000 428,366

Add net transfers from statement of changes in net assets:

Transfers in 350,186 324,880

Transfers out (338,171) (191,246)

12,015 133,634

Balance at the end of the year 574,015 562,000

The amount transferred to the life insurance reserve of $350,186 (2014: $324,880) represents deductions of $4.37 per each $1,000 of gross salary of each member from the accounts of each entitled member.

Page|31


14 NET ASSETS AVAILABLE TO PAY BENEFITS (CONTINUED)

(c) General reserve account (GRA) (continued)

The amounts transferred from the life insurance reserve of $338,171 (2014: $191,246) represent disbursements to the nominees of those members who died during the year equal to a year’s gross salary of the member. These amounts are in addition to the amounts standing to the deceased member’s credit.

2015 $

2014 $

Investment fluctuation reserve


Add net transfers from statement of changes in net assets - -


The Fund maintains this reserve account to assist in managing investment fluctuations and to help reduce any uncertainty of returns for Members.

General reserve


Add net transfers from statement of changes in net assets

Transfers in 209,694 366,592

Transfers out (208,533) (193,946)

(1,161) 172,646

Reclassification from deferred income 24,989 -


The Fund maintains this reserve account for the administration and development of Fund operations. Transfers out represents administrative expenses that were authorized by the Fund board to be covered from the General reserve and are as follows:

Audit fees 19,000 19,000

Board salaries and allowances 116,101 100,246

Travel expenses 46,344 14,587

Legal fees 7,250 5,000

Office expenses 19,838 55,113

208,533 193,946

15 NET CHANGE FOR THE YEAR

The net change for the year has been appropriated to accrued benefits and reserves as follows:

Change in net assets for the year attributable to members of the Fund 10,410,941 15,408,193

Comprises net transfers (to)/from:

Liability for accrued benefits (10,430,014) (14,812,279)

Pension accrued benefits 32,249 (289,634)

Life insurance reserve (12,015) (133,634)

General reserve (1,161) (172,646)

(10,410,491) (15,408,193)

Page|32


16 Benefit paid 2015

$

2014 $

: Attained retirement age 2,898,204 3,275,660 Death benefit 607,455 455,925 Early release: Medical 525,046 427,033 Rollover 155,687 94,223 Redundancy 23,362 136,784 Members voluntary account 26,870 70,793

730,965 728,833 Early release (Financial hardship): Migration 908,683 678,739 Deferred medical 39,214 279,313 Severe hardships 43,816 51,891

991,713 1,009,943 Others 794,575 807,719

Total 6,022,912 6,278,080

17 Commitments and contingent liabilities

(i) Operating leases

The Fund leases its office space in the Dupincia Building with a fixed term till end of June 2016 at a monthly rent of $12,122.

Lease and other commitments

Payable no later than 1 year 145,464 132,240

Payable later than 1 year but not later than 5 years

-

-

145,464 132,240

(ii) Contingent liabilities

As at balance date, the Fund board members are not aware of any pending or threatened legal actions being made against the Fund.

18 Related party disclosures

(a) Fund Board

The following were Fund board members of the Fund at any time during the financial year:

Prime Minister, Hon. Samiuela ‘Akilisi Pohiva (Chairman) - Appointed on 30/12/2014 Former Prime Minister, Lord Tu'ivakano (Former Chairman) –Term ended on 30/12/2014 Deputy Prime Minister, Hon. Siaosi Sovaleni - Appointed on 31/12/2014 Former Deputy Prime Minister, Hon. Samiu Kuita Vaipulu - Term ended on 30/12/2014 Finance Minister, Hon. Dr. ‘Aisake Valu Eke Mr. Sione Folau Lokotui (Members Representative) Mr. Manu ‘Aipolo ‘Akauola (Members Representative) Mr. Hekisou Fifita (Alternate Representative)

Page|33


17 Related party disclosures (continued)

(b) Key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Fund, directly or indirectly, including any Fund board member (whether executive or otherwise) of that Fund.

During the year the following persons were the executives identified as key management personnel, with the greatest authority and responsibility for planning, directing and controlling the activities of the Fund:

Chief Executive Officer

Acting Chief Executive Officer

The aggregate compensation of the key management personnel comprises short term benefits and is set out below:

2015 $

2014 $

Short term benefits 139,137 120,835

(c) Fund Board Members’ fees and emoluments

Amounts paid to Fund board members during the year are disclosed in Note 6. No other emoluments were paid or are due to the Fund board members at year end.

(d) Related party transactions

There were no significant transactions with related parties apart from those identified above.

18 Events subsequent to balance date

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Fund Board, to affect significantly the operations of the Fund, the results of those operations, or the state of affairs of the Fund, in subsequent financial years.

Page|34

P O A T E S I N O ’ I P A ’ A N G A M Ā L Ō L Ō M E I H E N G A U E F A K A M A T A L A F A K A T A ’ U 2 0 1 4 / 2 0 1 5

NGAAHI HOKOHOKO

Kau Memipa ‘o e Poate 36

Kau Ngaue 37

Visone, Misiona, Taumu'a mo e Ngaahi Mata'ikoloa 38

Fakamatala 'a e 'Ofisa Pule Fakahoko Ngaue 39

Fakamatala Pa'anga 52

M A K A M A I L E F A K A P A ’ A N G A 2 0 1 4 / 2 0 1 5

2014 / 2015 2013 / 2014

Katoa Tu’unga Fakapa’anga ma’ae ngaahi monu’ia

Katoa Pa’anga ‘ae Kau Memipa

Pa’anga Tatanaki

$

126,154,455

$

115,718,525

Katoa Pa’anga Tatanaki 11,799,475 16,848,805

‘Akauni Ta’ekouna’i 485,623 517,285

Katoa Pa’anga Tupu mei he ‘Invesimeni

Pa’anga Tupu ‘i he ‘Inivesimeni 5,757,524 5,704,969

Totongi Monu’ia ki he Malolo mei he Ngaue

Katoa Ngaahi Monu’ia 6,022,912 6,278,080

Monu’ia Malolo mei he Ngaue 223 129

Peseti Tupu ma’ae Memipa 4.75% 5.25%

Peesi|35


KAU MEMIPA ‘OE POATE SINO’I PA’ANGA

SIONE FOLAU LOKOTUI

Fakafofonga Memipa

MANU ‘AKAU’OLA

Fakafofonga Memipa

HONOURABLE Dr. ‘AISAKE V. EKE

Minista Pa’anga mo Palani Fakafonua

HEKISOU FIFITA

Fakafofonga Memipa

HONOURABLE SAMIU KUITA VAIPULU

Tokoni Palemia Malolo

LORD TU’IVAKANO

‘Eiki Palemia Malolo/ Sea Malolo

SAIA UAI HAVILI

Sekelitali

HONOURABLE SIAOSI SOVALENI

Tokoni Palemia

HONOURABLE SAMIUELA ‘AKILISI POHIVA

‘Eiki Palemia / Sea

Peesi|36


FOKOTU’UTU’U TU’UNGA ‘OE NGAUE’ANGA MOE KAU NGAUE

Filled Posts

Retirement Fund Board

- Saia U . HaviliChief Executive Officer

Michael A. Bloom field Deputy Chief Executive

2014/2015 - rfb.torfb.to/anr/annualreport20142015te.pdf · - saia u. havili chief executive officer...

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