On the occasion of the Employees Provident Fund (EPF) completing 50 years in mid-2008 since its launch in 1958, a survey by The Sunday Times FT to ascertain its ‘success’ over the years, shows some surprisingly results.
Generally the view has been that the rate of return is too low and if given the option, most people would opt for a well-managed, privately run pension fund. However the survey clearly reveals that many respondents still feel a government-guaranteed scheme like the EPF is a safe investment.
The graph here shows the results of the survey. The three questions asked – to which a Y – (YES), N – (No) or U – (Undecided) -response was requested -, are:
1) Has the EPF achieved what it set out to do – provide a reasonable retirement benefit to its members?
2) EPF funds are invested in Treasury Bills, Treasury Bonds, Equity, Corporate Debentures and Rupee Securities. Are these the best options for a decent return to its members?
3) Despite criticism over the ‘poor’ rate of return, the EPF is still a safe, government-guaranteed option unlike private pension funds.
The following is a compilation of the comments that were received along with the poll.
On Question (1):
-- It has succeeded from the point of security
-- Not really, as the interest payable should be increased in keeping with the present interest rates given by banks on deposits.
-- It could have grown to be much better but with the limitations we have had in achieving our full potential, the ETF has served well.
-- It has failed as EPF funds are invested in unproductive ventures without the approval of its members. There are reports that these funds were used for Mihin Lanka.
On Questions (2):
-- TBs are good but not corporate debentures.
-- Considering that it needs to be secure investments and not those only bringing higher yields, these instruments are appropriate.
-- Yes, because security is at least as important as returns and these are an employee’s lifetime savings.
-- Though TBs and government bonds are secure and these days pay high rates of interest, they are lower than the rate of inflation and therefore provide a negative return.
-- While the funds should - for the most part - be invested in secure investments, EPF funds are also used as a lender of last resort to the government, thus bringing down the rates of return.
-- EPF funds should be invested in preference shares of blue chip companies where-ever possible or in commercial banks which are not controlled by the government such as HSBC, HNB, etc. The recent bull-run on Hayleys shares where powerful businessman Mr Dhammika Perera bought 24 % and took over the controlling interest had EPF shares which were bought for Rs.150 per share. Were the EPF members consulted over this transaction?
On Question (3)
-- On what hand it is a government guaranteed option unlike private pension funds, while on the other, private pension funds also invest in T-bills, etc. These are bid at high rates and get maximum possible return unlike the EPF which bids at low rates.
-- If EPF fund managers consistently got yields (T-bills) below the weighted average yield, what sanctions or penalties do these managers face?
Members have a right to know.
-- No doubt it is a safe fund. Seeing what greed has done to pension funds in the US, ours is a more prudent approach.
-- The EPF is secure but so are private pension funds like the MSPS which are better managed, pay higher rates of interest and offer several benefits such as housing loans, early withdrawal and quick settlement of member funds.
-- The bottom line is that EPF members have no say in the Fund unlike shareholders of companies where the members can vote on important issues. It is best that the EPF is allowed to invest in other companies with a number of safeguards like preference shares, etc
Some general comments:
-- There are a number of troubling aspects to the management of the EPF. From what I understand the government (at least in the past) manipulates the whole system by making the EPF bid at lower rates for government securities. There is no proof of this, but from the outside it certainly looks as if this is happening. The EPF should be run as a completely separate entity with only state oversight and the government should not be allowed anywhere near this "pot of cash".
-- The Labour Department and the Central Bank should manage the funds in a more practical and profitable manner, offering a better return and allowing members to withdraw theirs savings within limitations.
The Sunday Times FT runs regular polls and surveys on email to ascertain public opinion on a range of issues. Those polled (from a data base of 1,000) represent CEOs, Managing Directors, bankers, professionals, public and private sector workers, professionals, NGO workers, etc. We received a total of 230 responses.