Pensions for government servants

The above may not be the best headline for a column on pensions for government workers. It is generally believed and understood that new workers to the state sector receive pensions. This is not the case since up to January 2016, pensions were paid to state workers and thereafter they were stopped and a contributory scheme similar to the Employees’ Provident Fund (EPF) for private sector employees was announced but not implemented.

This week, the government resurrected this scheme and announced its implementation with a bill to ensure its smooth operation being drafted for this purpose.

As I pondered over these issues, the phone rang and it was Ruwanputha, my young economist-friend, on the line. “Hey, did you hear about the new pension scheme for government workers,” he asked.

“Yes, in fact that is the subject of this week’s column,” I replied.

“I hope they don’t misuse the savings of state workers and invest in loss-making ventures in the stock market,” he said.

“Yes… we all remember the EPF investments in the troubled The Finance Company and also in the state-owned Canwill Holdings that in turn invested in the yet-to-beopened Grand Hyatt hotel,” I said.

“This is one of the issues with government control over pension funds. On one hand, equity managers managing these funds are compelled to invest in entities as directed by the government and on the other hand some of these funds are dipped into to pay government bills and cover state expenditure,” he said, adding that fund managers should be given freedom to choose the best option for investments and ensure pension rights of members to get a decent return on their money accumulating in these funds.

At this point, I ended the call with Ruwanputha as I wanted to listen to the conversation by the trio under the margosa tree.

“Eeiye (badada) loku weda warjanaya vurthiya sangam walin jayagrahi wune nae wage kiyala thamai aanduwe maadyaya kiyanne (The general strike by trade unions yesterday (Wednesday) didn’t appear to be very successful, according to state media),” said Kussi Amma Sera.

“Oya aanduwe maadyaya matha yapenna honda nae thorathuru dena ganna (You must not depend on government media for information),” noted Serapina, adding that the strike by state hospitals’ staff appeared to be successful as many people were not provided services at hospitals.

“Mae weda warjana avaishya thama janathavage prashna ismathu karanna, eth samahara-wita eva janathavata naraka vidihata balapanawa, rohal seva wage. Lokuma prashney thamai chandaya. Vurthiya samithi egollange virodatha navath wanne nae chande thiyena-kal (These strikes, while needed to highlight problems faced by the people, are also affecting them like in the case of hospital services. The big problem is elections and trade unions won’t stop their protests until elections are held),” said Mabel Rasthiyadu.

Coming back to today’s subject, the Cabinet on Monday decided to establish a fund named ‘National Contributory Pension Fund’ for all new recruits to the government service as well as those who have been recruited to the government service after January 2016.

According to the proposal, 8 per cent from the basic salary of the employee and 12 per cent from the employer (public institution) would be credited to the proposed fund when an employee is recruited to the state service. This is similar to the contributory and compulsory EPF scheme in the private sector where the funds are managed by private equity managers under the direction of the state. The EPF is managed by the Central Bank under the aegis of the Ministry of Labour.

An independent entity governed by a board of management to manage the proposed contributory pension fund will be established and a fund manager with special skills will be appointed for management of the funds, according to Monday’s official announcement.

It said the proposed contributory pension scheme will be applicable to those who are newly recruited to government service. Whereas, those recruited to government service after January 2016 can contribute to the proposed national contributory pension scheme as per their consent.

“The new contributory pension fund is being established to ensure an appropriate environment for government employees to spend their retirement without being a burden to the country as well as to provide a pension with a certain profit to state sector pensioners,” the government said.

While the new scheme has to be lauded since it provides a pension or lump-sum to state workers on retirement similar to the scheme in the private sector where retiring workers can remove their savings and invest in a pension for life, the challenge is to ensure sufficient checks and balances so that the funds, collected from workers, are not misused by the state which is forever struggling with a deficit budget owing to a shortage of cash for state spending.

Civil society and trade unions have been repeatedly complaining about the government using EPF funds to invest in loss-making companies, particularly in the 2010-2014 period. The EPF suffered huge losses during this period, affecting the returns of EPF members.

According to the EPF statements, as at September 30, 2022, the fund had invested in 66 listed companies in the Colombo Stock Exchange of which 32 had lost money as per current valuations. However, the overall picture is that the purchased stocks of these companies which totalled Rs. 85 billion had marginally appreciated in its market value, as at end September 2022, to Rs. 86.4 billion. A more prudent investment in listed stocks would have gained higher benefits though investing in the stock market is always a risky proposition. Among the compulsory investments for the EPF is investing in government securities including Treasury Bills and the recent high-interest trends in the market for these bills are trading at 30 per cent or more means the EPF would have hugely benefited from these investments.

An earlier statement as at March 30, 2022, showed EPF investments in 66 companies in the stock market at a total purchase price of Rs. 84.2 billion, had fallen in value to Rs.76. 5 billion.

EPF also invested Rs. 5 billion in Canwill Holdings (Pvt.) Ltd, owning company of the upcoming Grand Hyatt Hotel; Rs. 3 billion in West Coast Power (Pvt.) Ltd., and Rs. 500 million in SriLankan Airlines, based on government recommendations.

Just as I was finishing my column, brought my second mug of tea saying, athi eeiye weda warjanaya nisa (Patients would have suffered due to yesterday’s hospital strike).” I nodded in acknowledgment but my mind was reflecting on whether the government will prudently invest the workers’ contributions in the new pension scheme instead of following the EPF route.