The new pensions scheme for the private sector set to be implemented from May 1 has run into a storm of protests with trade unions, workers and employers coming together on one platform to raise serious concerns.
The worst part of the crisis was that the government sneaked the bill into parliament on Friday, a few days after Labour Minister Gamini Lokuge and his officials (on Tuesday, April 5) promised employers and trade unions that the issue would be further discussed with Finance Ministry officials reponsible for drafting the bill, before it is presented to parliament. To add insult to injury, the bill was presented by the Prime Minister – not the Labour Minister or the Finance Minister.
Some workers were contemplating taking up the matter in the Supreme Court in a fundamental rights issue on the right of individuals to decide how their EPF proceeds should be used – that is if the new scheme is made compulsory.
Some of the issues being raised are has any proper study been done (in actuarial terms) of the scheme and its sustainability; that labour officers themselves were unclear about its workings; the formula of payments on retirement; whether it’s voluntary or compulsory; age of retirement being specified as 60 years when, in most cases in the private sector, the retirement age is 55 years, etc.
After President Mahinda Rajapaksa announced in the 2011 Budget the government’s intention to implement a pensions scheme for the private sector, Central Bank Governor Ajit Nivard Cabraal told the Business Times in the paper’s November 28, 2010 edition that the rationale of the Employees Pension Fund is because often EPF members use up the money quickly (on retirement) and this source of income dries up. “Now there is another fund to fall back on in the form of a monthly pension,” Mr Cabraal said.
He said (at that time) that another benefit from this would be that senior citizens who plough their life savings into shaky unlicensed financial institutions to get a better return for their daily sustenance could now rely on a monthly pension, once they retire.
Asked why the government was launching another fund when it would have been easier to transform the EPF into a pension fund, Mr Cabraal was quoted as saying that super annuation funds and pension funds work differently. “In a pension fund you need to get a return every month,” he said, adding that the ‘scheme is voluntary’.
However well-known corporate personality Kishu Gomes says that if the rationale is for people to get pensions vis-à-vis the crash of finance companies and that interest income is not enough, then the government should be accountable for proper regulation and education on choices. “If there is more information people will be cautious and make an informed choice.”
Another valid argument raised is the sustainablity of the scheme. The Cabinet Paper says the ‘minimum pension for a period of 10 years service will be 20 % of the average salary of the last 10-year period prior to reaching the retirement age of 60.”
Now take for example, an individual who earns a basic wage of Rs 30,000. At the rate of 4% contribution (2% each from worker and employer), he would have accumulated Rs 144,000 for the 10 years of service on which he is entitled to a pension. On this calculation, he would receive Rs 6,000 for 24 months or two years which is equal to Rs 144,000. After that will his pension end or will the government continue to sustain it based on income earned through accrued interest? These and there are many other questions the public need answers to before the bill is passed by Parliament.
Opposition legislators at that time accused the government of creating these funds including the one with a pension plan for migrant workers as a reservoir to borrow at will.
Ceylon Federation of Labour President T.M.R. Rasseedin said that the memorandum seeking Cabinet approval for this pension scheme refers to an optional contribution by employers and employees whereas the draft law distributed to the National Labour Advisory Council (NLAC) says in Sec.3(1) that membership of the fund is mandatory and again in Sec.10(2) membership is made optional. “Clarification sought in this regard by members of the NLAC at the April 5 meeting elicited an evasive reply from the authorities,” he said.
The labour authorities were not consulted on the draft or preparation of the legislation and was one of the reasons why, the Minister included, were evasive in responding to questions or gave vague answers at the NLAC meeting. NLAC members had requested more discussions on this issue since it was announced in the November budget but were not privy to the proposal until only April 5.
Clearly … clearly, the government – facing serious questions about transparency in its doings in recent times - needs to get its act together and make sure proposals that adversely affect the public are discussed in the open and sufficient time given for debate. Further it’s hard to believe that the President, a former labour minister, would endorse such a proposal without a ‘White Paper’ discussion. |
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