Are trade unions becoming unsuspecting allies in the EPF 'privatisation' effort?

It is now abundantly clear that there is a concerted effort by the UNP-led Opposition to attack the management and reputation of the EPF. On the face of it, it may look like a normal opposition exercise where the Government and key government institutions are attacked to disturb and distract the smooth functioning of the economy.

However, certain connected factors are emerging, which when put together, suggests that the effort is linked to a broader strategy of 'privatising' the EPF, by breaking the fund into smaller parcels, and handing over of the management of such parcels to private parties.

The breaking up of the EPF fund management activities and handing over parts of it to fund management companies has been one of the key economic strategies put forward by the UNP several times, albeit unsuccessfully.

However, it can now be seen that they have not yet given up on that objective, and are again attempting, in a cunning and round-about manner, with the support of some unsuspecting trade unions and conniving NGOs such as Transparency International.

This 'break-up-the-EPF' cry was recently given an international boost by the well-known US-based consulting firm, McKinsy and Co., who in their report to the SEC in December 2011, set out an action plan where they recommended three key transformational themes for the improvement of the Colombo Stock Market.

Interestingly, but not surprisingly, the most important theme set out by them was the recommendation to outsource the current in-house portfolio management of the EPF and ETF, to private sector unit trusts.

Thereafter, the rating agency Standard and Poor (S and P) was influenced to highlight a possible 'conflict of interest' in EPF 'break-up-the-EPF' debate further.

Unfortunately for them, in the face of objections by the EPF, S and P had to admit, that they had "no information of any specific incidences occurring of a potential conflict of interest," and as a result the 'break-up-the-EPF' cry became weaker.

However, last week, Murtaza Jafferjee, whose open leanings towards the UNP are well-known, joined the bandwagon supporting "'reak-up-the-EPF' view by claiming, "I think that if private funds were to give a guarantee that they will provide, for example, one percent higher returns over what is offered by the EPF, that would be a very effective method to improve conditions for everyone.

It will give customers more choice and since the private sector may have better technical capabilities, it will not be difficult to guarantee that they could outperform the EPF."

Jafferjee, like the proverbial camel that got its head into the owner's tent in the desert, also expressed his fervent wish for the future, "About 45 percent of the workforce is not covered by a pension plan of any kind. Since Sri Lanka has no minimum social security net, this group will almost certainly become more politically active and will become a significant voter base capable of influencing government policy and when that happens, the Government will be forced to take steps. So it is really a matter of time."

Jafferjee who owns JB Stock Brokers is now probably having visions of the massive fees that private Unit Trusts and Fund Management companies will be able to charge the EPF, if the EPF funds are handed over to them for management.

The management fee which is normally charged by a unit trust or a fund management company to manage an outside investment fund is around two percent of the fund value. On that basis, since the value of the EPF is now known to be over Rs.1,000 b, those who are advocating this move would stand to gain fees of around Rs. 20 b (Rs. 20,000,000,000) per annum, as their fees.

These powerful vested interests seem to have been successful in hoodwinking a few trade unions to join in their endeavour to privatise the EPF, so that the private unit trusts, management companies and a few selected brokering firms could take charge of the EPF fund, earn massive fees, and control some of the key institutions in this country through the ownership of shares.

Unfortunately for them, people are aware of the large number of superannuation funds with millions of rupees of private and public funds that have crashed with members being left destitute during the past 50 years.

On the contrary, the Monetary Board has performed exceedingly well, both by providing a reasonable return and by ensuring the safety and stability of the Fund. In fact, over the past three years, the returns generated by the EPF have been the highest ever in history, when compared against the interest paid by commercial banks and average inflation.

That is why the Monetary Board and the Central Bank must be congratulated for safeguarding the EPF assets for such a long time and delivering excellent results when compared to other superannuation entities, instead of insulting and abusing them.

The Central Bank has asserted many times in the recent past that their current investment policies will ensure that the long-term interests of the fund members are safeguarded. Judging by their past performances, there is no reason to doubt the veracity of their assertion.

That is probably why the 'break-up-the-EPF' groups have to go all out now to discredit the Central Bank with bogus cries of mismanagement, so that the pro-privatisation groups could drum up support for their hidden agenda.

However, now that the cat is slowly but surely out of the bag, it is time for the millions of workers in the country to categorically warn these anti-national elements that with their hidden motives exposed, they will be defeated, however hard they may try.