The VNPF Contribution Increase

October 16, 2025 4:08 pm | Posted in Features | Share now Twitter Facebook

Security for Tomorrow or Strangulation for Today? The Superannuation Dilemma Facing Vanuatu

In the shadow of cracked buildings and a decentralising capital, amidst the economic soul-searching that has followed the December 2024 earthquake, the Vanuatu National Provident Fund (VNPF) has placed a critical question before the nation: should we mandate a higher superannuation contribution rate?

On the surface, the proposal seems unimpeachable, even noble. Who could argue against securing a better retirement for our elders and workers? Yet, to consider this question outside of Vanuatu’s current, fraught economic reality is to build a house on sand. The decision is not a simple question of prudence versus short-sightedness; it is a complex subject that pits a necessary future security against the very real risk of strangling a fragile, recovering economy in the present.

The Seductive Logic of Saving More

The arguments for an increase are powerful and, in the long term, undeniably correct. The VNPF’s core mission is to provide retirement security, and in a nation with a rising cost of living and an eventually aging population, bolstering the savings pool is a responsible, forward-looking goal. The current contributions may indeed be insufficient to generate a dignified retirement income, potentially leaving a future generation of Ni-Vanuatu elders in poverty and placing an unbearable strain on family networks and state resources.

Furthermore, the most compelling macro-economic argument is the creation of a larger pool of domestic capital. The earthquake has exposed our vulnerabilities, not least our reliance on external funding and the precarious state of our infrastructure. A larger VNPF could, in theory, become the primary engine for national reconstruction and development. This capital could be strategically deployed to finance the rebuilding of the Port Vila waterfront, invest in renewable energy projects to reduce our dependence on imported diesel, or provide low-cost loans to Ni-Vanuatu entrepreneurs looking to start businesses. It is a vision of financial self-reliance, where our collective savings fuel our own national development.

The Crushing Weight of Present Realities

However, this vision confronts the hard reality of our current economic predicament. We must first ask: who exactly bears the immediate burden of this proposed increase? The answer is twofold: the Ni-Vanuatu worker and the Ni-Vanuatu business owner.

For the employee, a higher contribution rate means an immediate reduction in take-home pay. In a period where the cost of living is soaring, and the earthquake has disrupted supply chains and destroyed personal assets, this is not merely an inconvenience; it is a recipe for genuine hardship. Every vatu diverted from a fortnightly paycheck is a vatu not spent on food, school fees, or rebuilding a family home. It would force a brutal choice upon workers: sacrifice your family’s current wellbeing for a distant, abstract future. This is not a choice a just society should lightly impose on its people.

For employers, particularly the small and medium enterprises that form the backbone of our economy, a mandatory increase in superannuation contributions represents a direct and significant rise in the cost of labour. The private sector is only just starting to recover. The earthquake displaced businesses, shattered consumer confidence, and disrupted operations. The great decentralisation of Port Vila has created new costs and logistical nightmares.

In this environment, forcing businesses to pay more for each employee will inevitably lead to one, or all, of three outcomes: higher prices for consumers, reduced hours for workers, or a halt to hiring. Some of the most vulnerable businesses may simply fold. The proposal, however well-intentioned, could act as a brake on the very economic recovery we so desperately need.

This is not a theoretical concern. Look at the seismic shifts in our commercial landscape. The sale of iconic businesses like La Parisienne and Traverso Butchery is a sign of economic stress. To layer a new, fixed cost onto the businesses that remain is to risk accelerating this trend, potentially leading to a further loss of local ownership and economic sovereignty.

A System in Flux, A Context of Fear

We must also consider this proposal within the government’s broader, and equally necessary, push for fiscal reform. The exploration of Personal and Corporate Income Tax, while prudent for long-term revenue, represents another potential future cost for both individuals and businesses. The public is being asked to digest multiple, simultaneous hits to their financial resilience. The psychological effect of this is one of uncertainty and fear. Introducing a superannuation hike amidst this cocktail of other proposed reforms could shatter what little confidence remains in the market.

Furthermore, the VNPF itself must answer a critical question: is it fully prepared to manage a significantly larger fund with the requisite sophistication and transparency? The loss of the National Bank of Vanuatu’s ability to process CBI funds highlights the fragility of our financial systems. A larger VNPF requires world-class governance, robust anti-corruption measures, and a strategic investment arm capable of identifying and funding viable national projects without political interference. The public must have absolute confidence that their sacrificed vatus today are being managed with impeccable skill for tomorrow. This is a prerequisite for any discussion about increasing contributions.

A Path of Prudent Compromise

So, where does this leave us? To reject the need for greater retirement savings outright would be irresponsible. But to charge ahead with an increase in the current climate would be economically reckless. The path forward must be one of prudent compromise and strategic sequencing.

First, we must focus on broadening the base, not increasing the rate. Vanuatu’s vast informal economy remains the elephant in the room. A policy that increases burdens on the formal sector while leaving the informal sector untouched is inherently unfair and counterproductive. The VNPF and the government should first dedicate immense energy to designing incentives and mechanisms to bring more workers and businesses into the contributory system.

Second, any increase must be phased in over a long-term horizon. A five-to-ten-year implementation plan, triggered only when specific economic indicators—such as GDP growth, employment rates, and private sector confidence—have recovered to pre-earthquake levels, would provide the necessary adjustment period. It would give businesses time to plan and grow into the new costs, and workers time to adjust their household budgets.

Third, we must first strengthen the fortress. Before pouring more capital into the VNPF, we must ensure its walls are impregnable. This means a public and independent audit of its governance structures, investment strategies, and risk management frameworks. Confidence must be built before contributions are increased.

The Grand Bargain: A Prudent Path Forward or a Raw Deal for Workers?

In the complex debate over Vanuatu’s economic future, a moment of rare clarity has emerged. The Vanuatu Chamber of Commerce and Industry (VCCI), in response to the Vanuatu National Provident Fund’s (VNPF) call for a significant contribution rate hike, has not simply shouted “no.” Instead, it has laid a counter-proposal on the table — a sophisticated piece of policy juggling that aims to turn a cost into an opportunity. Their proposal to exchange severance pay for higher employer superannuation contributions is more than just a negotiating tactic; it is a proposed grand bargain that strikes at the very heart of our social contract.

But is it a visionary compromise for a modern economy, or a dangerous gamble with workers’ hard-won protections?

The Compelling Logic of the Swap

On its face, the VCCI’s proposal is elegant, pragmatic, and forward-thinking. As they correctly point out, Vanuatu’s current system carries a historical redundancy. Severance pay was originally conceived as a form of unemployment benefit in an era before mandatory superannuation. The subsequent creation of the VNPF means that employers now bear two separate financial obligations designed, at least in part, to provide security for workers beyond their active employment.

The VCCI’s argument that this constitutes a “duplication” is economically sound. For a business, the certainty of a fixed, predictable superannuation contribution is far preferable to the volatile, lump-sum liability of severance pay, which can be triggered unexpectedly by dismissal or resignation. This uncertainty acts as a brake on hiring, making employers more cautious about expanding their workforce in a recovering economy. By replacing this unpredictable cost with a known, steady outflow, the VCCI argues it will “give businesses certainty,” thereby stimulating job creation — a benefit to the entire economy.

Furthermore, from a retirement security perspective, the proposal has undeniable merits. Antoine Boudier’s statement that this puts “contributions where they belong: in VNPF” is powerful. A severance payment, often spent on immediate needs in a time of crisis, does little to secure a worker’s old age. By channeling those funds directly into a superannuation account, the money is protected, compounded by investment returns, and dedicated to its ultimate purpose — a dignified retirement. It is, as new General Manager Wilma Sinumila states, a “pro-worker” outcome in the long term, potentially leading to higher retirement balances than the current system.

The Devil in the Details: Risk and Vulnerability

However, this grand bargain is not without profound risks and may mask a significant redistribution of risk from employers to employees. The central question is one of timing and purpose. Severance pay serves an immediate, urgent need: it is a financial bridge for a worker who has just lost their job. It covers rent, food, and school fees while they search for new employment. Superannuation, by contrast, is locked away for decades, inaccessible in that moment of acute crisis.

By phasing out severance, we effectively dismantle this bridge. What replaces it? The VCCI’s proposal speaks of “safeguards” and “how to treat accrued severance rights,” but it is silent on the creation of a modern, formal unemployment safety net. Without one, this reform could leave workers dangerously exposed — especially in an economy still reeling from an earthquake and characterised by significant underemployment.

This risk is not distributed equally. The proposal may be particularly punishing for workers in sectors with high turnover or seasonal employment. A worker who moves between several short-term contracts could find themselves with no severance safety net and a superannuation account that, while growing, is useless in the intermittent periods of joblessness. The promise of a larger retirement pot in 2060 is cold comfort when your family needs to eat in 2025.

The VCCI’s commitment to “protect take-home pay” by opposing higher employee contributions is a shrewd and politically astute move. It correctly identifies the immense pressure on household budgets and positions the Chamber as a defender of current living standards. Yet, one must ask: is this protection funded by the removal of a critical, immediate worker benefit? It is a trade-off that deserves intense public scrutiny.

A Test of Governance and Trust

The success of this entire proposal hinges on two fragile pillars: governance and economic stability.

First, the public’s willingness to accept this trade depends entirely on its faith in the VNPF. Can the Fund be trusted to manage this significantly larger pool of capital with absolute integrity and skill? The recent loss of the National Bank of Vanuatu’s correspondent banking relationship, and the general context of “Sinophobia” and geopolitical tension, highlight the fragility of Vanuatu’s financial systems. A grand bargain that funnels more money into the VNPF must be preceded by a grand demonstration of its robustness — through transparent governance, independent audits, and a clear, national-interest-driven investment strategy.

Second, the VCCI’s plan to provide a “regional evidence pack” is a welcome move towards evidence-based policy. Benchmarking against Melanesian and Pacific peers is crucial to ensure Vanuatu remains competitive for investment. However, this data must be balanced against the unique, acute vulnerabilities of the Ni-Vanuatu workforce in this specific post-disaster moment. A phased implementation to “avoid cost shocks for SMEs” is essential, but the phasing must also protect workers from “security shocks.”

The Path to a Durable Solution

The VCCI has done the nation a service by moving the conversation from a simple “yes or no” on rates to a more profound discussion about the architecture of worker security. Their proposal is the starting point for a negotiation — not the final word.

The Path to Fairness and Balance

For this grand bargain to be truly fair, it must be part of a broader social policy package. This could include:

Strengthening the VNPF’s Governance First:
A public, independent review and strengthening of the VNPF’s investment and governance frameworks must be a non-negotiable precondition.
Exploring a Formal Redundancy Scheme:
For dismissals due to redundancy, could a scaled, VNPF-administered payment be accessible, bridging the gap between the old severance and the new retirement focus?
Bolstering Active Labour Market Policies:
Reforms should be coupled with enhanced government services for job seekers — training, placement, and support — to reduce the time workers spend unemployed.

The VCCI’s proposal is not a panacea, but it is the most constructive entry point for a solution we have seen. It acknowledges the need for greater retirement savings while addressing a genuine pain point for businesses. The challenge for the government, unions, and civil society is now to engage with this framework, to dissect its risks, and to build upon it — adding the necessary safeguards to ensure that in building a more secure retirement for tomorrow, we do not create a crisis of insecurity for workers today.

The goal is a system that supports both a dynamic economy and a compassionate society. This proposal gets us halfway there; the national conversation must now complete the journey.

The proposal to increase superannuation contributions is a test of our national maturity. It asks us to think beyond the next election cycle and consider the next generation. But true maturity also lies in recognising present dangers. We must not sacrifice the economic viability of today’s Vanuatu for the promise of a secure tomorrow.

By choosing a path of deliberate, phased, and conditional reform — one that first broadens the base, strengthens the system, and aligns with our economic recovery — we can honour both our present citizens and our future retirees. The goal is right, but now is not the time. Let us first rebuild our today, to secure our tomorrow.