EPF reforms, an urgent need - Prof. Indralal de Silva

by Sanjeevi Jayasuriya

Sri Lanka is currently in the midst of a demographic transition, which will see an estimated 25 percent of the country's population crossing the age of 60 by 2040, raising serious questions on the availability of retirement funding for pensioners within the next 10 to 15 years.

"The Government is spending approximately 12 to 14 percent of the GDP at present on pensions.

However, this number is set to increase rapidly with the demographic changes that are currently under way, Senior Professor of Demography and Dean of the Faculty of Arts at the University of Colombo, Prof. Indralal de Silva said.

With 43.4 percent of the workforce being covered by the EPF and 14.4 percent through the government pension scheme, while a further 42.3 percent of the workforce remained outside of any pension scheme in 2011, the ability of the Government to provide adequate care for its dependent citizens in the next 10 years may hinge on policy actions taken, over the near to medium term.

"The lack of flexibility in terms of asset allocation is a real problem. Whether you are 25 or 55, the EPF will be invested the same way irrespective of the fact that when people are young they have the ability to take greater risks than when they are closer to retirement," he said at the 11th LBR LBO CFO Forum under the theme financial stability to senior citizens held recently in Colombo.

The EPF must be segregated into independent parts which deal in equity, corporate and government debt and a system must be introduced where each individual can decide on his risk return with the option of rebalancing his risk profile every five to 10 years, NDB Aviva Wealth, CEO, Prabodha Samarasekera said.

The lack of flexibility was also highlighted as being problematic for individuals seeking to make Sharia compliant investment due to the system's prohibition against drawing interest income.

Particularly, in the light of growing popularity of Islamic banking in the country, Samarasekera said that the EPF's failure to provide other options is a major drawback.

The size of the EPF was cited as another reason for segregation of the fund into independent operating bodies. Increasing competition in the market and thereby forcing the EPF to improve its returns was advocated as another solution.

"Approximately, 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 become more politically active and therefore they will become a significant voter-base capable of influencing government policy and when that happens, the government will be forced to take measures in time to come," JB Securities, CEO Murtaza Jafferjee said.

Meaningful reforms targeted at retirement funding including the possible segregation of Sri Lanka's largest social security scheme, the Employees' Provident Fund (EPF) is an urgent requirement to ensure that retirees have access to a pension in the future.

Pension reform is an issue that has not been addressed over the years and with the increase in the ageing population, the need for a social security system is felt more than before.

The country needs to make serious efforts to introduce reasonable measures for this segment of society which is fast growing. The changing and busy lifestyles have compelled many to find alternative solutions for a comfortable old-age living by themselves.