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PROPOSAL TO SET UP A PRIVATE SECTOR PENSION SCHEME PDF Print E-mail
Tuesday, 24 February 2009 00:00

PROPOSAL TO SET UP A PRIVATE SECTOR PENSION SCHEME 

At the National Labour Advisory Council meeting held on 21st May 2010 the Hon. Minister of Labour Relations and Productivity Promotion made a proposal for discussion in relation to setting up a private sector pension scheme. Both trade union and employer representatives present unanimously were of the view that there needs to be a comprehensive actuarial study done with regard to such a scheme taking into account a variety of factors, especially in relation to the sustenance of such a fund over a period of time. Our observations in relation to this proposal are as follows: 

  1.  There is no doubt that the introduction of such a scheme, if it can be sustained, will be very beneficial to employees. However, it is important for us to look at some practical realities that surround the whole question of sustaining such a scheme. This has been the main problem in the case of many pension schemes, both in this country and abroad. 
  2.  It is also important to bear in mind that already Sri Lanka has a very comprehensive superannuation scheme which can be compared with schemes even in some of the more developed countries. The bulk of the liability in respect of these schemes is borne by the employer. The employer contributes 15 per cent of the wage of an employee every month towards EPF and ETF. In addition, the employer also has the full liability of making payment of gratuity to all employees on cessation of employment, provided they have more than 5 years continuous service. Furthermore, the gratuity liability of an employer is reflected as a liability in the statement of accounts every year, as provision for same has to be made.

  3.       In this context, it is nothing but fair and reasonable not to further burden the employer with any additional contributions on behalf of employees, and we are happy that this aspect has been taken note of already in the proposals.  

4.       Many of the organizations in the private sector which currently grant pension benefits in terms of their own funds have been faced with the difficulty of sustaining the scheme in the recent past. There have been many instances of some Organizations making offers to employees to opt out of pension schemes in return for compensation packages. These offers are made purely in view of the difficulties such institutions have faced in sustaining such a scheme.

  5.       Another important factor that we need to take into account is that the current proposal does not envisage the payment of pension to everyone who contributes to the pension scheme. It states that, although every employee will be required to contribute 1 per cent from his EPF contribution to the scheme, ultimately only the employees eligible for pension will receive the benefits. This could undoubtedly cause much dissatisfaction amongst employees as well as Unions. 

6.       We must also not forget that Sri Lanka is currently having an ageing population and it is estimated that in 2025 or thereafter almost 50 – 60 per cent of Sri Lanka’s population would be over 60 years of age. This is a matter of crucial importance that we need to take into account in e mbarking on such a scheme. 

7.       On the other hand, it is submitted that we should, more importantly, look at what we have already and review as to whether the current superannuation schemes can maximize benefits to employees. If the intention is to genuinely grant maximum benefits to employees, there is an obligation and a responsibility on the part of the government to step in and at least grant some relief to the current superannuation schemes by way of tax exemptions, as was correctly pointed out by the Trade Union representatives at the last NLAC meeting. The undersigned also, at a previous meeting of the labour law sub committee at the time of discussing the unemployment benefits insurance fund, pointed out that it is not reasonable for taxes to be imposed on the income invested by the EPF and ETF. We understand that the amount of tax paid by EPF and ETF on its investments, if exempted, could adequately establish a fund for unemployment benefits. This was a joint proposal made by the employers and the trade unions at this meeting, which was not discussed thereafter.  

8.       In the circumstances, it is extremely important for us to ensure that maximum benefits accrue to the employees from the current superannuation schemes before embarking on another scheme. The administration costs of a pension scheme are also quite high, and this is another matter that we need to bear in mind. 

  9.       The financial system, for a pension scheme is based on an assumption of factors which are highly dynamic and variable. Especially in an era where financial markets tend to fluctuate, it is highly unlikely that assumptions made now could remain valid over a long period of time. 

10.    It is also relevant to mention that most of our Insurance Companies and Banks offer retiral plans through various schemes which guarantee a monthly income after retirement. It may also be prudent for us to also look at the possibilities of such a mechanism through the administration of the current EPF. What needs to be done is to efficiently manage the current superannuation schemes and give more options to employees within the scheme.

 

In the light of the above, we feel that this is a matter that needs a very careful study, revealing sufficient data and information for us to discuss further on it. In the circumstances, we are of the view that there is no need to rush in, in relation to this matter, especially in view of the complex issues surrounding the subject.

 

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Last Updated on Monday, 18 October 2010 15:38
 

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