Employers tend to see EPF payments as tax: researcher
13 October 2015 04:16 am
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By Chandeepa Wettasinghe
Some employers are evading the payment of Employees’ Provident Fund (EPF) benefits as they view it as a tax, a researcher and the head of a Colombo-based equity brokerage said.
“In the EPF, the employers have to pay more, so they think of it as a tax. The whole perception of the EPF has to change,” JB Securities (Pvt.) Ltd CEO Jafferjee said at the National Pensioners’ Day Symposium organised by the Pensions Department last week.
He noted that most employers are paying a low salary and add allowances in an attempt to evade EPF obligations. This too is against the law.
“According to the EPF Act, EPF payments have to be reduced from allowances and even food. But of course, sometimes the employees too don’t want their allowances to be reduced,” Jafferjee added.
In the EPF scheme, an employee contributes 8 percent of his monthly income to the fund and an employer contributes a further 12 percent.
Finance Minister Ravi Karunanayake recently told the media that if the Finance Ministry is informed of any employer engaged in such practices, they would be brought to justice.
Jafferjee noted that EPF assets are low partly due to this, as well as the higher number of maturing accounts due to the ageing population. Further, the retirement age in the private sector is 55.
The global average for pension fund coverage is 20 percent of gross domestic product (GDP). However, the EPF, which is the largest private sector retirement fund, accounts for just 13 percent of GDP.
The public service, which accounts for around 20 percent of employment, is allocated 1.66 percent of GDP in the budget annually without being placed in a managed fund.
Reports quoted Foreign Affairs Deputy Minister Dr. Harsha de Silva saying that the retirement age in the private sector should increase to 60 and remedial measures must be brought to support the EPF, as retirement payment outflows are on a trend to overtake monthly EPF inflows.
He warned that continuing in the current pace would lead to a liquidation of investments the EPF has made in the past.
Business opportunities
Lucrative business opportunities exist to manage the EPF retirement payments as pension plans, according to a head of a Colombo-based think tank.
“There is only one company which does a pension plan for the EPF. There are others who offer interest in return for the funds, but those are just savings or deposits which last for 10 years, and don’t offer payments till death,” Verite Research Executive Director Dr. Nishan de Mel said.
Leading life insurer, AIA Sri Lanka CEO Shah Rouf said that since the EPF benefit is handed over to a retiree as a one-off lump sum payment, they would want to spend it all at once on extravagant luxuries such as cars or holidays, as economics have proven that consumers have the urge to consume immediately.
Dr. de Mel said that since only one company is providing a secure management of funds, there is no competition in the market to provide the best rates.
Breaking into the market could be difficult, as fund management experts have said in the past that Sri Lanka lacks competent fund managers, and the country is only now attempting to build an ecosystem.