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Sri Lanka pension fund crisis looming

ECNOMYNEXT – Sri Lanka’s main state-run pension fund’s assets are not growing as expected with net contributions in danger of turning negative unless the retirement age is extended with the workforce aging, senior analyst at a stock brokerage said.

Murtaza Jafferjee, Managing Director of JB Securities, said pension fund assets are now about 1.9 trillion rupees with the Employees’ Provident Fund (EPF), the largest, close to 1.5 trillion rupees.

“Pension fund assets, as a part of the financial system, are actually coming down – it has come down to about 15 percent,” he told an investment fund and asset management forum held by Fitch Ratings.

“What I suspect is happening is that most people are viewing EPF as a tax and they are collecting a lot of wages as allowances. So the (EPF) contribution is not based on the total wages only.

“That may explain why it is not keeping up with the financial system.”

The Employees’ Trust Fund (ETF), a non-contributory benefit scheme where only the employer makes a contribution on behalf of the employee, has assets of about 194 billion rupees compared with 172 billion rupees the previous year.

Most of the growth in assets is coming via returns even for the EPF.

“Net contributions in 2014 have only been about 25 billion rupees, most of it coming through returns,” Jafferjee said.

“There are a lot of withdrawals – people are coming to 55 years and withdrawing the money,” he said.

“With our demographic aging structure, unless they move the retirement age, you might see net contributions going negative,” he said.

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Jafferjee said the whole financial system has about 12 trillion rupees in assets of which 62 percent are with deposit taking institutions like commercial banks, finance companies and rural banks.

Contractual savings institutions like the EPF and ETF and insurance firms have less than 20 percent each.
(Colombo/September 21 2015)
 

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