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Restructuring the EPF is vital to protect funds of the workers


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The unions must realise that Prime Minister Ranil Wickremesinghe is attempting to do a good thing; he is effectively taking the control of the fund away from the Central Bank to an independent body where all stakeholder representatives can sit together and decide how the funds should managed based on defined policy guidelines

 

 

The Prime Minister last week in his policy statement said steps would be taken to secure the funds in the EPF and ETF. He said both these funds would be amalgamated to create a new national pension plan and the combined worth of the new fund would be around Rs. 1.7 trillion. He also said “we will not leave room for politicians and officials to waste money of this new fund”. du

Despite that assurance, Opposition politicians and trade unionists have expressed their strong opposition to a Government move to set up a common fund by the merging Employees’ Provident Fund (EPF) and Employees Trust Fund (ETF) under the cover of introducing a pension scheme for the private sector employees. We cannot blame them given the track of the EPF where the former CB administration was accused of getting involved in pump and dump deals. 

There are many examples of such transactions that have still not been properly investigated by the current administration. For example the JVP’s North Central Provincial Council member and Chairman of the Inter Company Employees Union Wasantha Samarasinghe told a newspaper recently that the workers would take to the streets if the Sirisena-Wickremesinghe Government laid its hands on the EPF and ETF like the previous Rajapaksa Government.

He accused the Rajapaksa Government of having invested huge sums from the two funds in the stock market in an irresponsible manner. The General Secretary of Ceylon Teachers’ Union Joseph Stalin said the Government had no right to dip into the EPF and ETF according to its whims and fancies as they belonged to the workers and the Government was only its custodian.

Given this sentiment it would be prudent for the Government to discuss the proposed institutional mechanism and how the proposed institutional structure can protect the monies of the workers and give them better returns in the future.

 



Provident Fund

The EPF, which is under full State control, is the largest retirement fund of private sector workers. The EPF has invested about 92% of its funds in Government securities, 6% in stocks and 2% in corporate debt and short-term Government securities. 

Today, what often concerns contributors to the fund is the limited benefits the EPF offers them during their working life, when compared with some of the well-managed superannuation funds globally that fund skills development, healthcare and provide effective housing benefits. 

Take the CPF of Singapore; the whole scheme is tied to housing, health and a host of benefits for workers. It is also not out of place to point out that the NTUC (the only trade union recognised in Singapore) has the Prime Minister as Ex-officio President and that the type of tripartism practiced is unique and not much different to a communist form although the economic policy is strictly market driven. The CPF has never been accused of mismanagement and for investing in junk bonds and stocks. 

The concern for many workers is how safe their contribution would be by the time they retire and in addition, the real value of their balance that will be available to use as retirement income. That is where the real problem lies which needs to be addressed in consultation with all the stakeholders. The Prime Minister is the best person to do this.

 



Need to restructure

What the unions must realise is that what the Prime Minister is attempting to do is a good thing; he is effectively taking the control of the fund away from the Central Bank to an independent body where all stakeholder representatives can sit together and decide how the funds should managed based on defined policy guidelines. 

The members can also be given two options; either to continue with the current way of doing things under a credible body to expand the services of the EPF or to create a new mechanism to pay a lump sum at retirement and retain an amount to deliver a pension for life. Or even move beyond that to create a hybrid system consisting of both options.

According to the EPF Act, an employee is required to contribute a minimum of 8% and the employer a minimum of 12% of the total salary of the employee monthly, to the EPF. During the course of employment the worker derives little benefit and the benefit is fully for the State in the short term. Given the significant changes in the workplace as a result of new and advanced technology, a vehicle for skills training would also help employees to remain employable during their working life and also help to grow our nation’s skills base. 

On the other hand the ETF Board unlike the EPF has private sector and trade union representatives on the Board and the institution was set up to assist workers during their working life, unlike the EPF which was set up to benefit an employee when they retire at 55 years or 60 years. 

Furthermore, It may be also prudent for the Government to study its current and long term funding options and the risks associated with managing the EPF in consultation with the private sector because any change that is proposed should not fundamentally alter the rights of workers over their current benefits (Gratuity and EFT) or the long-term benefit of receiving a lump sum at 55 years or 60 years.

The private sector could also benefit substantially through a form of an unemployment benefit scheme, which a new system can fund if properly merged. That would help companies to restructure and become more competitive and for the economy to improve its competitiveness. 

Therefore, in the final analysis, the Government should be lauded for attempting to secure the retirement future of many low income workers who do not have the privilege of hefty bonuses and long-term options. What they however need to do is to ensure is that there is no room for bureaucrats and politicians to squander the funds of the workers like before, therefore the entire transition needs to be fronted by a credible and competent team appointed after consulting with all the key stakeholders i.e. the State, unions, employers and civil society. 

The Prime Minister for sure understands these issues and should therefore address them early to ensure he can successfully push through the reforms the EPF and ETF so badly need.

(The writer was a Chairman of the Employees’ Trust Fund Board.)


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