Right of reply
I am compelled to respond to your article appearing the in the Sunday
Observer of October 28, 2012 under the title - 'Are trade unions
becoming unsuspecting allies in the EPF 'privatisation' effort?'. Your
article has many factual inaccuracies and misrepresentations thus I
would appreciate a right of reply.
Thanks for the compliments that you have bestowed upon me - it seems
like the LBO forum has hit a nerve. The forum covered many other aspects
of the issues pertaining to the retirement system - the fast ageing
population, the widow problem, the huge problem with the unfunded
government pension system, the significant portion of the population
that has no coverage but instead you chose to focus only on a small part
of the discussion which was on the EPF.
You have quoted me as saying - "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." I did not state this; some
other journalist also stated that I said this.
This was stated by Dr. Nishan de Mel another panellist - you can get
the video of the session from Rupavahini and clarify.
Further, you have made the assertion that there is Rs 1 trillion to
be managed and thus the fund management industry is salivating about the
fees. For your information there is no Rs 1 trillion in assets - it's
only a book entry that states that the government owes the EPF members
around Rs 900 b (this is the investment in government securities)
sometime in the future.
The EPF is a pay as you go system in which inflows are used to pay
the outflows. In 2011 there was approximately Rs 62 b in inflows and Rs
47 b in outflows thus the net flow was about Rs 15 b. In time to come
the number of members retiring will increase in line with the
demographic transition, the outflows will increase at a faster rate than
inflows and that's when a pay as you go system has to liquidate its
assets to meet their obligations - this means the government will have
to borrow from other sources to fund retiring EPF members or reduce its
deficit by cutting expenses or raising taxes.
The essence of what I was trying to say was: One cannot follow a one
size fits all strategy for all members - for example some members of the
Muslim community want their investments to be conducted as per Sharia
principles - they don't want interest. Further, a person who is 25 years
is able to take more risk than a person who is 55 years.
Thus more investment options should be provided that can meet the
needs of differing members.
Secondly, competition is essential in a market economy. The EPF
should always remain but a member should have the option to decide an
alternate manager if he or she desires to do so - this provides more
choice as available in most other financial services that one normally
consumes such as banking and insurance.
You have confused the issue and are stating that the panellist
implied that the EPF should outsource the management of its funds, I
don't think anyone said this. You have also insinuated that I am aligned
to the UNP - you are badgering the messenger and not the message - I am
not a member of any political party nor do I have leanings towards any
political party - who I vote for is my business.
What I had to stay at the LBO forum has very little to do with
politics but more to do with the demographic transition that our country
is undergoing. It is an immutable fact that all of us will get old,
currently we have around four working people supporting one person in
retirement, this will reduce by the end of this decade to three working
people supporting one person in retirement and will further drop to
around two working people supporting one person in retirement in the
long term - when this happens who is going to fund the needs of those in
retirement.
We are not alone in the world having to confront this problem - Japan
is currently facing this problem since its median age is 45 years but
she is a rich country thus they have many other levers to pull including
a very high savings rate and ability to tax its working population.
Sri Lanka's median age is around 32 years, way ahead of our South
Asian peers due to our socio economic achievements (India is around 25
years and Pakistan 22 years). Thus we have to confront a real
possibility that our country will get old before we get rich.
As the old saying goes, 'What wise men do in the beginning, fools do
in the end', I started talking about this issue 15 years ago - all
governments in the ensuing period showed very little interest in
addressing this issue since the problem was beyond their political
timelines.
This is a matter than needs urgent attention for it is quite
literally a ticking demographic time bomb.
For anyone who is interested in finding out what was really discussed
at the forum I recollect seeing cameras from Rupavahini and ITN - one
can get a copy from them.
- Murtaza Jafferjee
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