Fate Of EPF, ETF Hangs In The Balance

• After much discussion between government and trade unions

By Hasitha Ayeshmantha

Much confusion was created when the government issued a statement claiming that they were planning to merge the EPF and the ETF together and handover the account to the Central Bank of Sri Lanka (CBSL).

Following the above situation, another make-or-break meeting was held between the trade union representatives and Prime Minister Ranil Wickemesinghe, Minister of Finance Ravi Karunanayake, Minister of Labour and several other trade unions that represent the National Labour Advisory Council. This discussion was held on the combining of the EPF and the ETF, building of national pension gratuity fund, deciding on a national minimum salary, granting of ownership of rented houses of State employees, and granting of land, houses rights for estate employees, which were requested for discussion by the trade unions.

President of the Inter Company Employees’ Union and Janatha Vimukthi Peramuna (JVP) Provincial Councilor, Wasantha Samarasinghe, speaking to media after the discussion on Monday the 16^th, stated that they have emphasized to the government that the need of the hour is to intensify the EPF – ETF procedure and through whatever means ensure that the employees receives their due.

He added that even though the government has intervened with their set of proposals, what is needed is to come up with a solid set of policy reforms with clear guidelines in relevance to the functionality of the two employee’s funds.

 

Viable solution

However, he also added that they are still not satisfied with the level of commitment by the new government with regard to the matter and added that the government should provide a viable solution to the matter on the backdrop of Budget 2016.

Samarasinghe strongly remarked that the new government came into power through promoting their agenda of economic development and that they should earn the peoples’ confidence to establish the aforementioned set of principles.

Meanwhile, establishing their stand of the government’s proposal, the Ceylon Chamber of Commerce said they welcome the moves to manage the ETF and the EPFindependently from the Central Bank, and that it is an important step towards better governance of people’s pensions and ensuring higher returns to their retirement savings.

Moreover, the Chamber added that introducing a pension scheme for private sector workers will be crucial to ensure that incentives on public sector and private sector jobs are neutralized, and this will contribute to some easing of labour market rigidities. However, other reforms to modernize labour legislation must also be simultaneously pursued, to cater to the emerging needs of enterprises and workers.

It was learnt that the biggest beneficiary of the change in process since 1997 till 2008 was the EPF and the ETF and thereby the employees of the country as the competitive auction process ensured that they received market rates for their savings. The targets were set so that the Employees’ Provident Fund would reach Rs. 1 trillion milestone in 2011. It is yet a mystery as to whether the above mentioned goal was yet another illusion.

As at August 31, 2011, the value of total assets of the EPF reached Rs. 976 billion, recording an annual growth of 14.6 per cent. With this growth, the EPF is expected to reach the total assets value of Rs.1 trillion by end of 2011.

The total income of the fund has also recorded a steady growth, particularly over the last five years, enabling the EPF to pay a higher rate of return to its members. The chart below depicts the rates of return given by the EPF to the members in recent years, compared to other alternative investment opportunities available in the country.

The total income of the Fund has also recorded a steady growth, particularly over the last 5 years, enabling the EPF to pay a higher rate of return to its members.

 

Government securities

A major share of the fund (92 per cent) has been invested in government securities, while the fund has invested 7 per cent of its resources in equities and 1 per cent in debt instruments of corporates. In addition to the funds of active members, a large number of retired members also maintain their balances with the EPF after reaching the eligible age for withdrawal. Accordingly, the EPF provides the opportunity for such persons too, to retain their savings in a safe and high yielding national superannuation fund, after their retirement. In 2010, over 210,000 new employees registered with the EPF as a result of the expansion in economic activities in the country, which enabled new employment opportunities to be generated in all sectors in the economy.

Furthermore, renowned Investment Banker and Stockbroker Ravi Abeysuriya has stated that what happened to the Colombo Stock Market in 2011 and early 2012 has been distressing to those who had exposure to our stock market and to those who make a living from the industry. Although some have blamed SEC, CSE, retail investors, high net worth investors, State institutions such as the EPF  and the NSB, politicians, the financial press, and stockbrokers, all are culpable for the state of affairs today. He has added that the damage is done and stockbrokers have lost much of their good standing and public respect today. The investment profession stands at cross roads. Time has come for each and every one of us in this industry to take personal responsibility and act in an ethical manner to take our industry to a higher level. Now is the time for action to rebuild the confidence.

However, he also states that it is imperative that State-owned institutional funds such as the EPF, the ETF, and others that manage public Funds have proper governance structures by adapting globally accepted standards of best practice such as the “CFA Institute Asset Manager Code” which specifically state that asset managers should:

1. Act in good faith the best interest of the beneficiaries of the Funds i.e. EPF & ETC belongs to the members whose livelihood after retirement largely depends on performance of these Funds

2. Act with prudence and reasonable care.

3. Act with skill, competence, and diligence.

4. Maintain independence and objectivity by, among other actions, avoiding conflicts of interest, refraining from buying stocks at inflated prices, following orders from top management who have vested interests and refusing to take any kickbacks from service  providers such as stockbrokers that could reasonably be expected to affect their independence (Financial press is full of  accusations of how these Funds are managed in Sri Lanka today).

5. Abide by all applicable laws, rules, and regulations, including the terms of the scheme documents.

6. Deal fairly, objectively, and impartially with all participants and beneficiaries.

7. Take actions that are consistent with the established mission of the Fund and the policies that support that mission.

8. Review on a regular basis the efficiency and effectiveness of the Fund’s success in meeting its goals, including assessing the performance and actions of scheme service providers, such as investment managers, consultants, and actuaries.

9. Maintain confidentiality of scheme, participant, and beneficiary information.

10. Communicate the performance of the Funds with participants, beneficiaries, and supervisory authorities in a timely, accurate,   and transparent manner. (Information such as the year on year performance of the EPF and the ETF fund component invested  on stock market benched marked against ASPI would help alleviate a lot of criticism about their investment practices).

Commenting on the outcome of the meeting with the trade unions, Minister of Fisheries Mahinda Amaraweera stated that he made a request from the Prime Minister highlighting the need of a proper explanation on the government’s intervention on the ETF and the EPF row.

The Minister also stated that following the above request, the discussion on November 16 was organized where all the trade unions were present and the Prime Minister assured that none of the decisions with regard to this issue will be taken without considering the opinions of these trade unions. He further stated that a more productive outcome will be expected in the near future after the conclusion of the discussions.