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EPF & ETF Funds at Risk

Thursday, 19 May 2011 11:41 | Author: unionslanka | The year 2011 has dawned with the working class in a perilous situation. The government has failed to fulfill any of the promises they made in 2010. There have at least not even provided any explanations for their failure to provide the promised Rs 2500.00 increment in the private sector. Public sector employees only received an increment of Rs 580.00 despite the promise of a Rs 2500 increment. However, the cost of living continues to spiral upwards rapidly. The Cost of Living Index (COL) rose 15 points between December 2009 and December 2010. This is an increase of 150% compared to 2008/2009. The COL Index rose to 228.3 by December 2010. The cost of a basket of goods according to government calculations increased by Rs 2700.00. In such a crisis situation the government is now planning to risk existing employee benefits as well.

The biggest fund the country has is the Employees Provident Fund (EPF). It is managed by special legal provisions. Its value by 2010 was over Rs 850 billion. At the same time, the value of the Employee Trust Fund (ETF) was Rs 110 billion by the end of 2010. Both these funds were set up to ensure the social security in long term for employees. The employer contributes 12% and the employee 8% (for a total of 20%) of the salary towards EPF. Employees who contribute towards EPF do not receive a pension. Instead, employees can obtain their EPF at retirement or the case of women if they leave employment after marriage. There are other benefits accruing from EPF as well. For example, employees can obtain loans in emergencies, grants for disabilities and scholarships for children etc. Employers contribute 3% of the salary towards ETF. This can be obtained every 5 years and also provides other benefits. This too is regulated by special legal provisions and 100% ownership is with contributing employees.

EPF and ETF are usually invested in treasury bonds and treasury bills. This is to ensure its security. During the last several years, these funds have also been invested in the stock market. In 2008 although Rs 30000 million was invested the returns were only around Rs 170 million. That is, only .60 % return on investments, which is quite low. Gradually, the government has started in increasing investment in the more volatile stock market and by 2010, investment in the stock market increased to Rs 60000 million. In a situation where returns from these investments are dropping, the government has prepared amendments to the laws regulating these funds in order to remove restrictions in how they invest these funds. The government has also included several measures that are disadvantageous to employees in these proposed amendments. Investment in treasury bills ensure the security of these funds. But the proposed amendments place these investments at risk by removing any restrictions on how they may be invested. Currently the regulations also state that these funds cannot be spent on administrative costs. Only the returns from investments can be used for administration. This is to ensure the security of the fund. In 2009 the return on investments was over Rs 100 billion. Despite such returns, the government is planning to bring amendments to the management of both EPF and ETF funds in order to construct a 30 storey building. If the proposed amendments go though, the funds can be used by the government for anything. This will even enable the government to invest in their henchmen's schemes and in failing ventures such as Mihin Lanka. Additionally, the 2011 budget proposes that the government may invest in foreign markets as well. This is a serious situation. In order to prevent employee resistance to the proposed amendments the government has offered employees a few 'carrots' such as the ability to obtain 30% of the fund without interest after 10 years. Also the government is presenting these amendments as an introduction of a pension scheme. This is yet another effort to mislead employees. Private sector employees have been asking for a pension for many years. The government has proposed in the 2011 budget to establish a pension scheme to which employees and employers will contribute 2% each. However, it is not specified how the pension will be given to employees. At the same time the long standing gratuity scheme has been eliminated. Under the gratuity scheme, private sector employees who have worked for more than 5 years are eligible for the equivalent of half month salary for each year of service as a retirement fund. Gratuity is given by the employer at retirement or when the employees terminates his or her service for any reason. What has been proposed in the 2011 budget is to collapse the gratuity into a retirement scheme. The gratuity that exists under the 1983 regulations has been removed under the proposed amendments. To cover this up, the government has said it is establishing a retirement fund. It is not possible to establish a retirement fund with 4% of the monthly salary. A systematic pension scheme is required in order establish a proper retirement package. This scheme should be discussed among trade unions, employers, employees and the state. Employees should receive a pension that provides them with a decent income at retirement. What the government is proposing can be described as a charity hand out. A retired employee cannot even survive for one day on what is being proposed.

What is being revealed is that government is gradually robbing the funds that have been established for the welfare of employees. If employees remain silent they will lose not only their EPF and ETF but also their gratuity; nor will they receive a proper retirement package. Up to date the government has not revealed how much the employee will receive as a pension. Discussions have not been taken place either with employees or with employers. Instead, the government is deceiving the public and preparing to rob the funds that have been established solely for employees welfare.

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