EPF by the people for the people

Wednesday, 18 January 2012 00:01 - - {{hitsCtrl.values.hits}}

THE proposed amendments to the Employees Provident Fund (EPF) have created a much-needed discussion forum on pension funds and their benefits, while also bringing several crucial points into the limelight.

Experts have pointed out that if the Government is genuinely keen on maximising returns of workers, then they need to exempt EPF earnings from tax and take a holistic view of the various pension funds in Sri Lanka. In a nutshell, even though the EPF, Employees Trust Fund (ETF), pension and gratuity exist, repeated taxing by the Government on all of them and any investments the pensioner might make on receiving them serve only to reduce their effect.

It has been pointed out that the Sri Lankan system, while having good intensions, is not managed effectively, leaving many loopholes for money to be bled out of the funds and increasing pressure on the employers. The recent news report saying that 68,000 people have defaulted on loans obtained from the ETF is an indication of this rot and the grave need for better management so that the funds give better returns to those who deserve it the most.

Under the EPF, the Central Bank has to release an annual report revealing all financial details regarding it, including transactions, returns, assets and liabilities. It is therefore worrying when the Central Bank has not even released the report for 2010 and neither the Auditor General nor other stakeholders have a clear idea of the state of Sri Lanka’s largest fund.

This is another can of worms that has been opened up due to the proposed amendments and even though the contentious pension clause has been removed, the very fact that it took public outcry to do so and was not openly discussed by the Government is a distressing point.

Moreover, using the hard-earned money of the people to build a 30-storey high rise for the EPF, ETF and Labour Commission needs to be reassessed. Is spending billions of the people’s money really worth it? There are plenty of other worthier causes, should the authorities consider them.

In its Road Map for 2012, the Central Bank has outlined ambitious plans for the EPF. The report says that the focus of the EPF will be to ensure a significant positive real rate of return to the members, with the benchmark to be at least 1.5% over inflation in any five-year period. It also wants to ensure the safety of the fund and provide efficient service. The investment portfolio is to be diversified into listed and unlisted equities, corporate debt and securitisation products and long-term Government bonds and mega project financing is to be explored.

EPF growth is estimated to be 14% in 2012. Return on 2011 investments is projected to be 12.3%, but this is expected to reduce to 11.1% this year. Return rate to members is provisionally 10.5% in 2011, but UNP MP Eran Wickramaratne says that the actual number is closer to 4% and has asked the Government to appoint a Parliamentary Select Committee to probe the matter, but to no avail. Online member contributions are expected to increase from 25% of contributing people to 75% by year end. Currently 62,000 employers are with the EPF and this figure is expected to rise to 125,000 by end 2012.

Therefore, it is clear that the Government and the Central Bank have many issues to address regarding the EPF and they may rest assured that the public is keeping a very vigilant eye.