Nov 11, 2015 (LBO) – Sri Lanka’s new move to separate Employee Provident Fund from the Central Bank would only ensure more security to the fund and end conflict of interest, Deputy Minister of Foreign Affairs Harsha De Silva told reporters on Monday.
“If someone says the employee provident fund (EPF) is safe with Central Bank, what is the safety you can get for EPF in Central Bank if you get a negative interest rate which has been the case for most of the past five years,” De Silva said.
“Someone can also argue about the safety point if the Central Bank had invested the fund in secured investments. But they haven’t,” he said.
“Why the government started the EPF, is to invest worker population savings, and to make their retirement life easy. The act itself ask for 2.5 percent return or ask the treasury to support it. In early days Central Bank was the only management who had that knowledge and skills to manage the fund. That is why it was with the Central Bank for all this time,” he explained.
“Both EPF department and debt management department are managed by the Central Bank. So when the government needs to borrow money, the Central Bank gives it through EPF. It is not right and there is a conflict of interest.”
Sri Lanka’s EPF funds currently handled by the Central Bank which also manages government debt. Due to that the EPF funds which also known as captive funds are regularly invested in state debt.
Central Bank management of EPF funds creates a conflict of interest as the government would want to borrow at low rates while private sector workers who save money in the EPF would want a higher return on their savings.
The new plan of the present government is to set up a public trust to independently manage the Employees Trust Fund and Employee Pension Fund by amalgamating them to create a new national pension fund that will have a combined worth of 1.7 trillion rupees.
The public trust will be managed by a board of trustees appointed by the constitutional council and a committee consisting of members of the civil society, unions and chambers of commerce will supervise it.
The board will also have employee representatives as well.
De Silva didn’t explain the new investments that are going to be made by the fund in the future.