The events leading to the abortion of the proposed private sector pensions bill reminds one of the fable “the Elephant and the blind men”. We saw many critics to it. Each viewing it from different angles and accordingly rationalizing in their own way, attributing mostly un -creditable motives.
To some it was a too hasty introduction! Why should the President do it on May Day! Or in the aftermath in keeping with his May Day announcement.
Some others say that this is not sustainable according to Population and Employment predictions for 2040! Who can say such forecasts are bad and the predicaments untrue. In fact some are predicting the ‘End of the World’ too!
There are others who say that some of the wordings in the draft bill are ambiguous leading to suspicious future trends.
All these criticisms sound as if some solutions can be found or proper explanations possible to any misconception.
But there is another school of thought, more vociferous in their opposition, who take up the position that the draft Bill should be withdrawn and should not be re-introduced even with amendments!
All these culminated in the events that we saw, mostly very unfortunate and deserve to be viewed compassionately. It is regrettable and a pity that the voice of the authorities were rather mild and meek instead of a vehement defense that should have been put forward at least with regard to the underlying concept.
Hence it becomes necessary to view this proposal in a broad sense and offer whatever clarifications possible in order to convince those who need to know the truth and facts.
Historical background
The idea of introducing a Pension Scheme or rather a Social Security Scheme covering the Old Age pension for the Private Sector is a very old one. In fact the EPF system introduced in 1958 was a positive prelude to this requirement.
During the latter part of the 70s and throughout the next decade (1980s) there were several public initiatives in this regard worthy of reminiscence in the present context.In March 1989, the Cabinet accepted the concept of creating a National Social Security System. In October 1989 a draft Bill was introduced and gazetted on 26th September 1991.
This draft bill became a sensational issue due to the vehement opposition to it by trade unions and Social Groups. It was pointed out that the Bill contained several disadvantages compared with the benefits under the EPF. The bill was viewed with serious doubts and skepticism because the proposal appeared more to be a dubious plan for the Government to have access to the EPF monies at its disposal .
Due to mounting opposition and also due to obvious inherent weaknesses pointed out, the Government finally suspended the bill and withdrew it from the order paper of the Parliament. It remains shelved ever since with no agitation or claim from the workers quarters for the introduction of a scheme to fulfil the need of providing a pension to the Private Sector Employees.
The only significant development subsequent to the withdrawal of the Draft Bill came from a National Level Tripartite workshop that was held under the auspicious of the ILO in October 1993 at the SLFI with the participation of representatives of all leading Trade unions. The report of this Workshop was made available in April 1994 by the ILO.
It is relevant and important to consider the recommendations of this workshop in the context of the current confusion that has arisen following the introduction of a new bill for a Private Sector pension scheme.
All participants of the workshop after a preliminary session of presentations and discussions on a wide spectrum under the subject of social security, were grouped into three separate groups for the purpose of identification of issues and make recommendations for the Sri Lanka scenario. It is very interesting to record here that all three working groups each comprising Employers, Employees and Government participation agreed on the following;
a) to maintain status quo of EPF , with lump sum payment on maturity,
b) to improve the EPF system
c) to introduce a supplementary pension scheme funded by sources other than regular EPF contributions
d) ETF and Gratuity and specific transfers from EPF to be the source of funding of any new scheme
The current situation is the next stage of the development of this concept. A closer examination of the Bill shows that several issues addressed by the Trade Unions then have been considered under it.
Funding
The bill proposes to get 10% of the annual investment income of the ETF; unclaimed balances lying in the Provident Fund (EPF) on account of persons over the age of 70 with the provision that even if such a claim is belatedly made to entertain such and Rs 1 billion voted by the government in keeping with the last budget proposal;
Contributions
2% of the Gross earnings from the employee; An equal amount by the Employer; 2% from the Employees PF final balance at the time of retirement; 10% of the Gratuity payment at the time of retirement (accordingly the fear psychosis that is canvassed that the EPF benefits will be denied is false)
Pension Benefits
For persons having not less than 10years and less than 20 years of contribution to the fund - 15% of the last drawn salary as the pension for life time starting from the age of 60; For contributions less than 30 years – 30% of the last salary as pension; For contributions of 30 and over years 60% of the last drawn salary as pension.
If a member who has contributed to the fund dies, his spouse, and dependent children below the age of 18 years and any surviving disabled children will be entitled to 60% of the balance lying to the credit of the member in the fund.
Some of the salient features in the proposed bill are:
- It provides for persons with less than 10 years of contributions to the fund to make an application for entitlement of benefits under the fund;
- It maintains a separate individual account for each member who contributes and provides for a balance certificate to be sent to each member annually;
- The benefit of any default charges or fines levied to defaulting employers will be passed on to the member;
- The cumulative service years under any number of employers will be taken into account for eligibility requirements of minimum 10 years
In this context we shall now examine some of the skepticisms against this bill:
- The wording on contributions is ambigious because it says not less than 2%. The critics say it has to be worded as ‘Not more than 2%’.This is not a difficult amendment. But for what purpose? The critics say the fund is not sustainable , therefore the employee contribution will be increased. But look at the EPF. What happened? The contribution rates proposed under the original Act were subsequently changed, increased by Amendment Acts brought by the Parliament. Such arguments are therefore baseless unless there is a universal guarantee for no changes under any circumstances!
- That a pension must start from 55 years and not 60. The working class today in facing the realities must ask to fix the retirement age at 60. They have to take into account seriously the universal factors of an aging population and the need for longer working years. It can be claimed that if for any employer the retaining of any employee beyond the age of 55 becomes a problem such employers can retire the employee at the age of 55 but pay 5 years contribution into the pension fund as compensation for early retirement. This way all can get the pension from the date of retirement.
- On the other hand if as argued the life span is longer, averaging to 75, then it becomes more important to ensure a life long pension for the benefit of the old age. In any case the retiring employee is entitled to his other terminal benefits as before and he can live the five years on those and become eligible to the pension at 60. If the pension scheme was not there this is what they have to do anyway not only till the age of 60 but till death.
The Government of the day has to be commended for attempting to bring this piece of legislation for the benefit of millions of innocent desperate private sector employees in this country.That is the truth. But if it is bitter to those who do not like to see the Government getting praise for doing something beneficial to the working class due to some sadistic political aberrations, the working class will have to condemn such despicable actions.
Finally some suggestions can be made to minimize any adverse effect on workers due to the implementation of this Bill and improve its effectiveness and purpose:
- Fixing of a minimum pension under this scheme
- Refund the contributions of those who do not become eligible due to shortage of service years .
- The monthly returns by Employers to be simplified along with EPF returns
Let sanity prevail in matters of national importance!
(The writer is a former Chairman Bank of Ceylon, former Chairman National Gem and Jewellery Authority, former President Ceylon Bank Employees Union, former President Peoples bank Pensioners Association and General Secretary of the National Trade Union Council (NTUC) from 1989 to 1994) He can reached at rusiri41@sltnet.lk.) |
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