Private sector pension scheme; who’s the real beneficiary?

By Nabeela Hussain

Benefit or rip off? The much talked about and controversial Employees’ Pension Benefit Fund (EPBF) Bill for the private sector employees and employees who were denied the right for a pension in 1996, has the trade unionists and employers vehemently opposing it.

It looks to establish a fund for the private sector employees for pension benefits that the employees as well as the employers have been clamouring for years. The bill is expected to ensure a substantial benefit for the private sector employees after retirement, much like the one enjoyed by the public sector employees after their retirement.

So why denounce a scheme that will finally establish what has been asked for years? Trade unionists say that though they want a pension and will contribute to it, it has to be beneficial for the worker, something they do not see taking place in the scheme proposed by the government. Instead, they are demanding for a scheme that includes the proposals from the tri-party body, the National Labour Advisory Council (NLAC), to which all matters concerning the workforce are brought before . They all agreed that they did not oppose a pension scheme but want to change the one that was proposed by the government as they had no faith in the fund.

A majority of the members in the NLAC said the EPBF did not guarantee benefits for the employee and lacked an actuarial study, especially those of insurance and pension studies needed for the watertight continuation and running of the fund.  

Purposefully misleading?

Director General of the Employers’ Federation of Ceylon (EFC), Ravi Peiris, said the members of the NLAC did not know about the bill until it was approved by the cabinet and presented to Parliament for its first reading. “When we did find out we wrote to the Minister of Labour and asked him to summon an emergency meeting of the NLAC to discuss the bill,” he said.     

Trade unionists and the EFC, alike claim they were not consulted or told about the bill until it was presented in Parliament for its first reading earlier this month. “We did bring it up in a NLAC meeting last year after it was put forward as a budget proposal and we were promised comprehensive discussions about the bill before it was presented to Parliament, therefore there it was not discussed again until we got to know that it was approved by the cabinet,” Mr. Peiris explained.

During the emergency meeting that took place on April 5, the members of the NLAC were given the second draft of the bill along with the cabinet papers that were presented. “We get three different documents, the drafts that were given was different from the bill that was presented to Parliament,” said Inter Company Employees’ Union (ICEU), President, Wasantha Samarasinghe.

Mr. Samarasinghe pointed out that among the many conflicting points in the drafts and the bill, there was concern whether the scheme would be voluntary. “We were ensured that the scheme would be voluntary during our meetings but later we found that it has been made mandatory,” he explained.

All trade unions in this article together with the EFC allege the bill was being ‘sneaked into’ Parliament as they, the representatives of the employees in the country did not know about it. “We were not only given a different draft to the bill that is now in Parliament but we also were not told about it,” a unionist said.

The Secretary of the Ceylon Mercantile Union (CMU), Bala Tampoe, also pointed out that even though the bill was issued on March 28, the draft given to the NLAC members during the emergency meeting on April 5, were different, which  was presented to Parliament had 51 clauses while, the draft has only 50 with the clause relating to the establishment of a consultative committee for the fund being left out of the draft.

“Though the draft mentions that a fund will be established it does not explain how, whereas the bill has new sub clauses,” Mr. Tampoe said. He explained that it was a peculiar situation where the bill drafted by the Finance Ministry was different to the draft presented by the Ministry of Labour to them.

Mr. Tampoe also pointed out that the Secretary to the Labour Ministry had made some propositions regarding the bill dated March 31, a copy of which was circulated at the meeting on April 5. “I only saw the draft  that was presented to Parliament earlier this week and there are material differences between them,” he said. A trade union official said the bill was not presented to the members of the NLAC.  

Minister of Labour Relations and Productivity Promotion, Gamini Lokuge however denied claims of the NLAC not being informed of the scheme. “We not only informed them of the scheme but also handed them all the necessary documents of the history relating to the scheme and asked them to submit their suggestions and proposals to make an excellent fund,” he said. He also added that studies had been conducted and that the scheme was made accordingly.

Criticism made by trade unions and the EFC

Among the many criticisms levelled at the bill, a majority of the trade unions accused that an actuarial study had not been conducted by the relevant ministries, thereby not having the proper formulas for the fund.

“The bill erroneously presumes that the age of retirement is 60 when this is not so, most retire at 55 although there is no law about it,” EFC President Ravi Peiris said.

The fund that is set up by the government will be self -ufficient and funds it own expenses. “If this is a pension by the government for the people, then the government should continuously contribute towards it from the budget, but here they are giving a bond which will be taken out later, so it’s not a contribution at all,” said UNP MP, Ravi Karunanayake. He questioned as to why the government needed to take the employees money to set up a fund that would give them a pension but had no say how much. Drawing a comparison with other countries Mr. Peiris pointed out that Sri Lanka was beginning a pension scheme for the private sector when other countries with such schemes were looking to end them or increase the age of retirement.

Minister Lokuge argued that it was the responsibility of the government to set up social security  schemes, especially for employees, in line with the ILO’s social security convention. “This is an additional benefit the employee will be getting in addition to the EPF and gratuity.”

The age factor and the claims to the pension

According to the bill that has been presented to the parliament, a member of the fund only becomes eligible to receive a pension at the age of 60.

ICEU, President, Wasantha Samarasinghe claims the bill unfair for women as they retire when they are 50 and have to wait for 10 years to receive a pension where as men retire at 55 and would only have to wait for five years. The Ministry said that though there were clauses that needed to be changed in the bill they would not be changing the age eligible to receive the pension.

Furthermore, trade unionists point out that the bill is particularly unfair towards the spouse and heirs left behind on the death of a member. “If a member dies his/her spouse will not receive the money that is their entitlement, what is more is that only a child below the age of 18 or who is mentally or physically handicapped would receive 60% of the amount what is there in the account,” said Mr. Samarasinghe. Minister Lokuge however said that the 40% of these monies in the persons’ account would be re-injected into the fund.

The EPF, ETF and gratuity

Trade unions point out the EPF, the profits from the ETF as well as the gratuity are the right of the employees, and therefore the government should not tamper with it before discussing it with representatives of the employees.

Unions oppose the clauses of the bill that allow the monetary board to invest monies of the fund as it seems fit, ensuring that two thirds of it is invested in government securities. “The bill itself renounces the right to hold anyone responsible if there are losses made from these investments, further more it has categorized theft as an expense, we can see from this that no one will be held responsible if something happens to the money in the fund,” said Mr. Marcus.  “Though the President is constitutionally responsible for the fund if something happens to it as the Minister of Finance, we don’t see anyone being held responsible,” said Mr. Tampoe.

Unions say that with two thirds of the fund invested in government securities, it leaves one third of the money to be invested to where the government pleases. “We have had bad experiences of investments of the EPF that have gone wrong,” said Ceylon Federation of Labour (CFL) President, Rasseedin.”If you look at the first group of members who will be receiving their pension when they are 60 will receive less than the national poverty line average,” he said.  Minister Lokuge said that EFP could not be given to anyone unless it was requested and promised that the fund took on the responsibility to hand over the EPF of any of these accounts if the owner was to apply for it.

 

Worst affected?

Bank employees and workers in the export sector are said to be affected the most. “Though the bank employees have asked for a pension scheme since 1996 when they lost the right to a pension we have been patiently asking the government for one, but this is not a scheme that we want,” said E. K Vithana, Vice President of the Ceylon Bank Employees Union. 

“We had an agreement with the Finance Ministry, and they have taken bits and pieces of it in an attempt to show that our voices have been heard, but we see this bill as something that is against employees,” he said. Mr. Vathana said that banks might have a problem with cash flow as they had paid an enormous sum of money as the employees contribution and gratuity.

He also added that they did not see the bill being fair as it only affected a part of the banks in the country and not all of it.

Mr. Marcus of the FTZWU said that export sector employees would be affected as well. “Many of the   employees who are the backbone of the garment sector do not work for the stipulated 10 years, they work for seven or eight years and they get married and leave, these women will not eligible for a pension and neither will they get back what they have contributed,” he said.

Minister Lokuge however, said there were many changes to be made in the bill that would take place while it was debated in parliament. He also added that discussions were ongoing with the Finance Ministry to make provisions for those who have contributed for less than the stipulated number of years to withdraw their contribution.

Action to be taken
Apart from the petition filed at the Supreme Court by the CBEU pointing out the bill was not in line with statutory requirements, trade unions have now formed a joint front  and warned they would be taking serious collective action if the bill is passed in Parliament and if forcibly enacted. They however pointed out that it were the employees who needed to stand up ensure that a public forum was made and the issue taken up as the only thing they could do was to create awareness among the people.

The Bill

Establishment

The bill will be established with the annual profit of the Employees’ Trust Fund (EPF), the money of inactive EPF accounts whose members are over the age of 70 and a government bond of Rs. One billion.

Membership of the fund

Any employee in a covered employment and his employer, along with the Commissioner General of Labour shall become a member of the fund immediately after the act is gazetted and shall remain a member as long as there is a sum of money in his account in the fund.

Contributions to the fund by the employee and the employer
The employee will contribute not less than two percent of the monthly gross salary, ten percent of the gratuity of the employee when it can be claimed and not less than two percent of the EPF account of the employee when it can be claimed.   

The employer would contribute not less than two percent of the employee’s monthly gross salary.

The contribution of employees who do not have the pension benefit since 1996, will contribute five percent of the monthly gross salary hereafter and also pay in one installment the employee’s contribution calculated from the date of joining the institution, if the date is after January 1996, till the date of enactment of the act. The employees of such institution shall also renounce their entitlement to gratuity and pay the total amount of gratuity to be collected in one installment and five percent of the employee’s EPF. 

The employer of such institution shall also pay five percent of the employee’s gross salary monthly.

Interest on contributions

Members of the fund will receive an interest of not less than two point five percent annually out of the income of the investment of the fund.

Payment of pension and eligibility

A member of the fund who has contributed, between 10 -19 years will receive a pension of 15% of the average salary drawn during the years of their contribution. While members contributing between 20-29 years and 30 years and above would receive 30% and 60% of their average salary drawn during their years of contribution.

While employees with no pension benefit since 1996, would need 20 years of contribution to receive a pension of 30% of their last drawn salary, members contributing for a greater period of time would receive two percent extra for every year of contribution, provided their salary increments were not above 6.5% of the preceding year.

Claims to the pension

If a member,  before claiming his/her benefits after becoming eligible, dies while contributing to the fund but does not become eligible, only a child below the age of 18 years or a child who is certified to be mentally or physically handicapped by a registered medical practitioner would receive 60% of the amount lying in the account of the member in one installment.

If a member ceased to be employed due to permanent incapacity to work as certified by a registered medical practitioner, the member will only receive 60% of the amount lying in the account of the member in one installment.

 

 

 

 

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