EPF – Investors/ employees aren’t getting a real rate of return
View(s):The Employees’ Provident Fund (EPF) doesn’t give a real rate of return to its investors – a perennial issue that got some eminent and interested parties debating at a recent LBR LBO CFO Forum on ‘The Future of Retirement Funding’.
A real rate of return is an annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. For example, if a bank pays an interest of five per cent an year on the funds in a savings account and if the inflation rate is currently three per cent per year, then the real return on the savings today would be two per cent. The forum saw presenters saying that today the EPF doesn’t grant such a return.
“In such an instance when the real rate of return that the EPF gives is low, there’s an opportunity for the private sector (to mobilize these funds) as they can guarantee a higher return,” Nishan de Mel, Director of Verite Research, who was a presenter at this forum, told the Business Times.
Sri Lanka’s social security schemes for the workers are limited to the pension of the public sector and the EPF and Employers’ Trust Fund (ETF) benefits for the private sector. Analysts say that retirement plans, retirement programmes and the very concept of retirement are all changing at a rapid pace.
Murtaza Jafferjee, CEO JB Securities, another presenter, said that this problem is very poorly understood in this country. “Also there is no political expediency on this matter since the problem is 10-15 years away. Greater awareness and debate is the starting point,” he said, adding that there’s a long felt need for pension reforms.
Explaining the Pension Fund Trustee Code that Institute of Certified Financial Analysts has put out, Mr. Jafferjee said that a retirement fund is required to act in good faith and in the best interest of the scheme participants and beneficiaries.
“Acting wih prudence and reasonable care. Acting with skill, competence, and diligence. maintaining independence and objectivity by, among other actions, avoiding conflicts of interest, refraining from self-dealing, and refusing any gift that could reasonably be expected to affect their loyalty are also set in this code,” he said.
The code urges pension fund managers to abide by all applicable laws, rules, and regulations, including the terms of the scheme documents. It also urges them to deal fairly, objectively, and impartially with all participants and beneficiaries, while taking actions that are consistent with the established mission of the scheme.
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