Firestorm over pension reforms
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The government may have to walk back a few steps from its controversial proposal to split the Employees’ Provident Fund (EPF) into two – a portion to be given as a lump-sum on the retirement of the contributing worker and the balance as a pension.Although the intention of the government (ensuring a pension for private sector workers) may have been honourable, the way it approached this proposal without wider consultation was suspicious. Lessons should have been learnt as a previous attempt to resort to a similar exercise led to the death of a Katunayake Free Trade Zone worker in police shooting during protests against such a pension scheme.
I am flagging this issue as it figured in a telephone conversation this Thursday morning with Arthika, my nonsensical economist friend also known as good-for-nothing Somey. “I say……what is the furore over private sector pensions?” he asked. “It’s a proposal made by the government but is opposed by workers and employers,” I said.
“Isn’t this a good policy?” he asked again. “It may appear to be but there are suspicions that the move is essentially to enable the government to use this money for its own purpose. This was the same suspicion on a previous, similar occasion,” I said.
This appears to be a case of amnesia by the government. Otherwise, why forget the previous occasion when such reforms were abandoned due to rising protests?
In 2011, the Mahinda Rajapaksa-led administration along with the architect of the pension reforms, then Treasury Secretary Dr. P.B. Jayasundera, decided to introduce a private sector pension scheme using EPF funds. Workers, represented by trade unions, and employers, represented by the Employers’ Federation, vociferously opposed it. Subsequently, the president called a meeting with the trade unions and employers along with Dr. Jayasundera and blasted the unions and employers. The intention at that time was clearly to enable the government to use this money as it was strapped for cash.
In rising protests against the move, 22-year-old worker Roshane Chanaka, at the Katunayake Free Trade Zone, was shot dead by police, while hundreds of workers were injured. The proposed ‘Employees Pension Benefit Fund’ had been presented to Parliament as a bill but was abandoned by the government following the huge outcry.
It was stated at that time that while the 26 Sri Lankan trade unions which are members of the National Labour Advisory Council (NLAC) were not entirely opposed to pension reforms, they insisted that all decisions on this matter should be collectively discussed and jointly approved by the NLAC. The NLAC is a tripartite body comprising workers, employers and the government.
This week on Wednesday, a similar tripartite meeting was called by the Ministry of Labour to discuss EPF-related matters. Officials, however, studiously avoided the question as to whether the pension proposal was based on an IMF requirement to maximise the use of the funds for the benefit of the workers. Officials said another meeting will be held next week.
The latest proposal came when on January 6, Deputy Minister of Labour Mahinda Jayasinghe informed Parliament of such a move saying the social security scheme for private sector employees is at risk if they get their EPF in one instalment, suggesting that a portion should be given on retirement while the balance would be received as a pension.
The ‘poor’ management of EPF funds has been a perennial problem. It has been raised at many fora by workers and employers recommending that they should be included in the decision-making process when investing the fund in government securities, the stock market and other avenues. The process created a storm when it was revealed that billions of rupees had been invested in ‘dud’ stocks in the Colombo Stock Exchange, resulting in huge losses.
According to a note prepared for Wednesday’s meeting, it was stated that at present EPF investment decisions are taken by the Central Bank and stakeholders have no say in such decisions. Trade unions have been requesting a tripartite and transparent governance model, involving representatives of workers, employers and the government, to strengthen accountability, trust and ensure that decisions reflect the interests of workers, it said.
The EPF represents a compulsory monthly contribution of 20 per cent of a worker’s salary made up of employees (8 per cent) and employers (12 per cent). The fund had more that Rs. 4.4 trillion (by end 2024) and is one of the largest social security funds in Asia. The investments in the fund (end 2024) were made up of 94.5 per cent in government securities (virtually by mandate), and 4.4 per cent in equities and other investments. The fund received interest income of Rs. 514 billion by end 2024.
Under the ILO Convention, any social security scheme must be managed by the government, workers and employers but in Sri Lanka the government, which doesn’t contribute any funds, manages the fund without the workers and employers involved in its management. So how can the government decide arbitrarily to create a pension scheme out of it?
Trade union leaders said the EPF can give much more benefits to the workers if structured properly. This is one of the rare occasions in the world where a social security scheme is managed by a government without any contribution.
During Dr. Indrajith Coomaraswamy’s tenure as Central Bank Governor, there were regular tripartite meetings – the bank, workers and employers to assess the EPF funds and its management. It was the only time when workers and employers had some say in the management of the funds, and then too the call was made repeatedly for workers and employers to have a board position in the EPF board of management.
Phew! After this long discourse on pensions, I had to rejuvenate myself with another mug of tea, thankfully acknowledging Kussi Amma Sera for preparing one for me in the kitchen. I also eavesdropped on the conversation (an interesting one) by the trio under the margosa tree.
“Mokakda wela thiyenney anawaki kiyana ayata saha wena wanchakarayanta, godak deshapalana aya giya pahu-giya davas wala (What has happened to all the soothsayers and charlatans that politicians relied on in the past,” asked Kussi Amma Sera. “Mata mathakai eh kaley goda denak giyaney anawaki kiyana Gnana Akka saha COVID paniya hadapu ekkena langata. Den egollo kohewath nae ney (I can remember lots of people going to Gnana Akka, the soothsayer, and the person who made the Dhammika Paniya, the COVID-19 concoction. They are nowhere to be seen these days),” noted Mabel Rasthiyadu. “Mata hithenawa aanduwey baala deshapalagnayin eh kattiyawa athi wela kiyala (I think the largely-young politicians in the government are fed up with these people),” added Serapina.
Leaving soothsayers and herbal ‘gods’ aside, the government – if its intentions are honourable -, needs to resort to a serious discourse with all stakeholders on the proposed new pension reforms before taking any decision mostly affecting workers and their saved funds. A good decision will benefit workers but a bad one will turn them into victims through no fault of their own!
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