Pensions for private sector more progressive

by Gamini WARUSHAMANA

The ageing population is a serious issue that policy makers need to pay immediate attention to minimise the negative socio-economic implications and must prudently plan welfare and social security of the ageing population.

According to the 2001 Census, Sri Lanka's population was 18.7 million and projected to increase modestly to peak at 21-23 million by 2020-2030 and will contract thereafter.

The main reason for this demographic break is slowing down in population growth.

The fertility rate (the number of children that the average woman will bear during her lifetime) fell below the replacement level of 2.1 by 1994. It has continued to fall, reaching 1.7-1.9 at present.

According to a recent World Bank report, this trend is similar to Japan, Korea, Taiwan and Thailand. Increasing life expectancy is the main reason for an increase in the ageing population, with life expectancy already higher than in some OECD economies.

According to the report the population aged 60 years and more will increase from 11 percent currently to 16 percent in 2020 and 29 percent by 2050, before peaking at 34 percent in 2080.

At the same time, there will be a process of ageing, as the oldest people aged over 80 years, are those who are most likely to be frail and dependent, will increase from one-tenth of the aged population to almost one-third. By 2050, the 80+ year age group will account for more than 5 percent of the population.

This demographic trend will create many socio economic issues and the welfare of senior citizens is one of them.

The proposed pension scheme for private sector employees is an important decision the government took recently considering this aspect. This was in the 2011 Budget proposal and subsequently a Bill was presented in Parliament recently. The Bill has now triggered a public debate and trade unions have raised concern and opposed certain provisions in it.

Pensions have been a dream and a demand of private sector employees for a long time. Trade unions have been demanding a pension scheme similar to that of state sector employees.

In 2006, the then Labour Minister Athauda Seneviratne promised to set up a private sector pension fund. A private Bill was also presented in Parliament for this purpose by an Opposition party MP in 2006. Therefore, the need for pensions for private sector workers is unanimous.

Under the proposed Pension Fund for private sector workers, four percent of the salary of a worker will be deducted, two percent from the employee and two percent from the employer.

Already 23 percent of the salary is deducted for the Employees' Provident Fund (EPF) and Employee Trust Fund (15 percent from the employer and 8 percent from the employee) and with the new fund it will increase to 27 percent of the salary. Trade unions are against some of the provisions in the Bill which they say are unfair.

However, this is not of serious concern to the TUs.

They say that a study should be done in the lines of Switzerland pension schemes where 33 percent of the salary of an employee is deducted and 80 percent of the salary is paid as monthly pension.

Trade unions opposed certain technical issues in the proposed Bill and called upon the government to correct them through dialogue between partners to make the pension scheme sustainable. The arguments of the TUs are that the pension is an employees' right.

Pension payment should be sufficient enough for pensioners at least to manage their basic expenses.

Since the money in the fund belongs to the workers, the final Bill should be presented in Parliament with the concurrence of trade unions via National Consultation Committees to the Labour Ministry and employers.

A fund-raising mechanism, pension payment process (based on balance in the individual accounts of employees), proposed 2.5 percent low annual interest for deposits in individual accounts is unfair, they said.

Employees are entitled to a pension after they are 60. Since women retire at 50 and men at 55 they have to wait 10 and 5 years to receive the pension after they retire. TUs are also against the provisions in the Bill for the payment of the remaining amount for the dependents after the death of the employee or to the employee in case of permanent disability.

EPF and ETF are the main retirement schemes of the private sector and semi-government sector workers that are managed by the state.

However, retirement plans are now being implemented by private, finance and insurance companies as well and according to market sources the demand for such retirement plans are on the increase.

Public servants are the most privileged among the labour force in Sri Lanka, even though they complain of low salaries they receive compared to their private sector counterparts.

In addition to the large number of holidays, lower workload and liberal working culture, they have the most secure retirement plan totally funded by the government on taxpayers' money.

A pension provides people with an income when they no longer earn a regular income from employment. Pensions are paid in regular instalments.

The EPF retirement plan under the Central Bank for private sector employees is the largest fund in Sri Lanka. EPF which is contributed by employees and employers is paid in one lump sum when the employee retires.

According to the Department of Pensions, a minimum monthly pension a government employee receives today is around Rs.4,000.

The amount depends on the salary earned by the employee, number of years in service and the employee will receive 85 percent or 80 percent of his or her monthly salary as pension. The amount decreases by two percent per year as the number of years in service decreases.