Proposed private sector employee pension benefit fund bill
Management Case StudyProposed Employee Pension Benefit Fund Bill Industrial RelationsPrepared byChanuk Liyanage<br />Course: Professional Qualification in Human Resource Management<br />Stage-01<br />INSTITUTE OF PERSONNEL MANAGEMENT SRI LANKA (INC.)<br />Page of Content<br /><ul><li>What is the Proposed Employee Pension Benefit Fund Bill?
And it’s Background03</li></ul>Problem Statements04<br /><ul><li>The shortcomings of proposed pension act and our
(Conclusion)11</li></ul>References12<br />Case Study : - Proposed Employee Pension Benefit Fund Bill<br />Resource Person :-Mr. M.N.J. Jayarathne<br />What is the Proposed Employee Pension Benefit Fund Bill?<br />And it’s Background<br />We all know that almost all our state workers are benefiting their pension after their retirement. It is very important for the survival of them at their old ages. But when we think about our private sector workers what about their retirement life? It is thru that they get ETF EPF and Gratuity as superannuation benefits. But these are not enough for their whole lifetime spending until the death. Because of that our president decided to offer a pension scheme for the private sector workers.<br />Providing old age pension scheme is a good concept and it has been discussed in here since 1960.It is not a simple task which can be done overnight and within past few years ILO carried out a study on this subject.<br />When this subject was discussed at the national Labor Advisory Council (NLAC) in November 2011, Trade Unions, Employers, Labor ministry Officials agreed that this requires deep and careful study. In the agenda of January, February, March 2011 NLAC meeting did not carry this proposal.<br />In the latter half of March 2011, Media reported that a memorandum on this matter has been submitted to the cabinet ministers. The Employer’s Federation of Ceylon (EFC) has requested for a Meeting of NLAC. This meeting was held on 5th April 2011 at which meeting copies of the cabinet memorandum and the draft act was provided to members of NLAC. It was revealed that this has not been drafted by the ministry of labor, but by the ministry of the finance. As the architect of the draft was not available, it was not possible to discuss this subject especially in view of apparent short comings of the draft act. It was also revealed that this has been drafted without consultation of the social partners.<br />There has been apparent contradiction between the contents of the cabinet memorandum and those of the drafted act. For example, joining the proposed fund was voluntary in the cabinet memorandum and this has not been mentioned in the draft act.<br />The Hon. Minister of labor and labor relations conducted a meeting assuring that a meeting will be arranged with those responsible for drafting of the bill before legislation will be introduced to parliament. However, in the meantime before arranging this meeting, a draft bill was presented to parliament on 8th April. <br />Also the draft bill that was presented to the parliament for the first reading was not the copy that was circulated or discussed at the NLAC.<br />Problem Statement<br /><ul><li>What are the shortcomings of proposed pension act for private sector employees?
Submit your proposals how to reintroduce this bill, as expectable for all stakeholders?
Critically analyze the reason as to why Sri Lankan government had to withdraw the proposed pension fund bill? </li></ul> <br />The shortcomings of proposed pension act and our<br />Suggestions for them<br /> Although providing old age pension scheme for private sector is a good concept, there are some clearly identical shortcomings of the proposed act. Some of these shortcomings effect in present while most of them will be effect for employee and employer as well as government ultimately in the future. Therefore as a middle party, we have identified them and give the justifiable suggestions to overcome those shortcomings, as expectable for all stakeholders.<br />Section:- 2 (2) (a)<br />Issue:-There shall be paid into the fund 10% of the annual profit of the Employee Trusted Fund.<br />Analysis:-Current annual profit of ETF is SLR 15 Billion. The pension fund will get SLR 1.5 Billion annually. This means ETF dividend will reduce 10 %, for example from the current rate of 12.5% (div + interest). If the individual member accounts are credited with their contributions for what this money is being used. Although this pension scheme is contributory fund employees do not like to contribute 10 % of profit from ETF because they also have to contribute 2% from their salary, 2% from their Provident fund and also 10 % from gratuity for the pension scheme.<br />Suggestions:-ETF profit should not be tapped for the proposed pension scheme.<br />Section:-2 (2) (b)<br />Issue:-Unclaimed EPF accounts over 70 years will be add to the pension scheme fund.<br />Analysis:-Claimed or unclaimed, EPF accounts are the property of individual worker and his dependants. Government haven’t right to add them to the fund, without the permission of employee or his dependents. What will happen if some worker or his dependant wants to claim their EPF after 70 years?<br />Suggestions:-It is true that unclaimed EPF accounts over long period may not claim forever. Therefore it will be more fair if that “over 70 years” will be change to “over 100-120 years”. And also search for dependants of individual employees before add them to the pension fund. <br />Section:-2 (C)<br />Issue:- Government will provide SLR 1 Billion bond for the fund.<br />Analysis:-This 1 billion is a bond and it is not a fund. Also it is not readily available for invest in the pension fund. If there is no money in the fund, government will supply up to one billion rupees.<br />Suggestions:- Government says that this is a contributory fund. If it is true government should contribute One billion rupees or whatever they can as a fund, not as the bond. That money should be available for invest and distribute benefits among employees. It is impotent that giving the direct contribution of government for the fund.<br />Section:- 5 (1) (f)<br />Issue:-May invest such moneys of the fund as are not immediately required for the purpose of this act, in such securities as the board may consider fit. It says that the one third of the investment may be investing in securities other than government securities.<br />Analysis:-There can be controversies such as recent investment in shares by EPF issue as many can object to such investment as not secure. This issue will decrease the feeling of security about the scheme within the employees. Government securities are highly secured and people feel that their money is secure with investing in government securities.<br />Suggestions:-It is important to ensure that money will be invested in government securities, at least at the initial stages, while the fund growth to stable. If not government should explain and add limitations for that statement.<br />Section:- 10 (1) (b)<br />Issue:- Members of the private pension funds will not be members of this pension fund.<br />Analysis:-Such members, while losing on the ETF dividend rate will not get any benefit out of it.<br />Suggestions:- The provisions should be taken if there will be any employee who can’t be member of this scheme, should not take any of salary and EPF ,ETF deductions. If that deduction will be taken ad they are not entitled for the pension scheme it will not justifiable and also it will create bad impression for government, among those employees.<br />Section:-10 (1) (a) (b)<br />Issue:-There are retired government pensioners working in the private sector companies. They also have to contribute to the fund.<br />Analysis:-What will happen to their contributions for the fund? It will also overlap the provisions in the fund. It says that employee will wait until 60 to entitle for the pension with 10 year contribution. But most of these employees join with private sector after age of 60 and they only work for 6-7 years until their energy is fresh.<br />Suggestions:- It is better to pensioners of government sector release from the private sector pension scheme. Also as mentioned above issue, the provisions should be taken if there will be any employee who can’t be member of this scheme, should not take any of salary and EPF, ETF deductions.<br />Section:- 16<br />Issue:-Interest rate is stated as 2.5% minimum.<br />Analysis:- The provides the possibility for the proposed fund to pay a less interest rate when EPF pays a higher rate. Also with that minimum rate government never go to supply a higher rate for employees and they can hang on word minimum.<br />Suggestions:-The interest rate should be same percentage as in EPF.<br />Section:- 25(1)<br />Issue:-Private sector retirement age is 50/55. But under this act workers have to wait until 60 of age to get his first pension.<br />Analysis:-How will they spend that 5 or 10 years until they get pension after they retire from the job? Also will they get any additional interest for their money within that period? Also they can’t spend that money properly if they were died before 60 of age. <br />Suggestions:-Pension scheme should begin with the retirement age of 55 or 60. If employee will retire at 55 after he completed all requirement of scheme, he should get pension at 55. If he retire in 60 it will start on 60.<br />Section:-25 (3)<br />Issue:-In the event the member does not have required number of years prior to retirement. i.e. 10 years will not be eligible to receive a pension after the age of 60.<br />Analysis:-This is detrimental to those older employees as they are compelled to contribute but will not receive pension.<br />Suggestions:-Their retirement age should be raised to 60 or until it complete 10 years contribution. If it is impossible those workers should begin to receive pension at the 55 according to percentage of their contribution’s amounts.<br />Section:-26<br />Issue:-There is no provision in the act for the spouse to receive pension in the event of demise of the husband/ wife. <br />Analysis:-Employees always hope to protect their family members and dependents with the pension even after they were died. Protection should be provide not only to the employee concerned but also to spouse and dependent children.<br />Suggestions:-Provisions should be made for the spouse and or dependent children to receive pension after the death of pensioner. <br />Section:-26 (1) (b)<br />Issue:-Where a member dies before receiving a pension (not having reached 60 years) but duly fulfilled the requirement of the act; his disable children or below 18 years children will receive only 60 % of the fund lying in credit to his account.<br />Analysis:- What happen to rest 40% of his pension? It is his individual earning and employee and his dependent has a right to get 100% of it. It is not fair to deduct 40 % of pension from poor disable or dependent children who are below 18, even though they lost their parents.<br />Suggestions:-Such must receive the full amount lying to his credit.<br />Section:-26 (2)<br />Issue:-Where a member ceased to be employed due to permanent disability is entitled to only 60 % of the funds lying to his credit.<br />Analysis:-It not fair and reasonable that deduct 40 % of his credit because of his unexpected disability. Issues like that will absolutely create a bad image about the scheme among the public as well as employees.<br />Suggestions:-Such a person should get the full amount of his monthly pension.<br />General Issues<br />Issue:-Workers in Free Trade Zones particularly work for 5 years before leaving employment.<br />Analysis:-Fund limits eligibility for 10 years service these workers. They couldn’t complete this condition to become entitle for receiving pension.<br />Suggestions:-Provisions should be made for such workers to receive refund as in part 111 sections 26. Their pension claim should be calculated according to the % of contribution of their minimum 5 years.<br />Issue:-Companies in private sector / especially in FTZ companies do not pay EPF regularly or effectively.<br />Analysis:-The success and work ability of the fund depends on the employers depositing the dues to the fund without default.<br />Suggestions:-A mechanism should be implemented to ensure that the dues are paid by employer without default.<br /> <br />Issue:-Even though it is contributory scheme, now it says that it is mandatory. <br />Analysis:-According to the common knowledge contributory pension schemes are voluntary in nature. Therefore the employee must have the discretion to decide. If not it has to be none contributory pension scheme. <br />Suggestions:-As a trade union give right to decide the employees, whether they are become members of scheme or not.<br /><ul><li>Why Sri Lankan government had to withdraw
the proposed pension fund bill?</li></ul>Even though providing old age pension scheme is a good concept; Sri Lankan government had to withdraw the proposed pension fund bill with the increasing protest of workforce. What are the reasons for it?<br />As I think, this situation happened because of the poor industrial relations within the country. There is not sound corporate tri-party industrial relation among Government, Employees and Employers within the country. <br />158115067310<br />As mentioned in above diagram if there was healthy industrial relation among these tri-parties we were never experience such an unfortunate situation happened in BOI factories. Why those employees reject the proposed superannuation scheme? <br />If there is proper industrial relationship among those parties there will be a good communication. Unawareness of the employees is the basic reason for that unfortunate death of employee at the BOI factories incident. Secondly above mentioned issues also caused to withdraw this bill. These issues created a big fear for the bill among employees. This fear and trade union’s political agendas lead employees toward against the proposed act.<br />Another important thing is that government did not well prepared for the act and also didn’t take it to discuss with steak holders. Sri Lanka had the similar experience when ETF and EPF funds begun in the past. Even though government didn’t prepared for the after effects which can happened with the bill introduced. Also government didn’t calculate the political power of trade unions before the act introduced.<br />Also the bill was drafted by ministry of finance. There is no any contribution of the ministry of labor and labor relations. Also no any contribution or suggestions from employee’s as well as employer’s side.<br />The Hon. Minister of labor and labor relations conducted a meeting assuring that a meeting will be arranged with those responsible for drafting of the bill before legislation will be introduced to parliament. However, in the meantime before arranging this meeting, a draft bill was presented to parliament on 8th April. <br />The draft bill that was presented to the parliament for the first reading was not the copy that was circulated or discussed at the NLAC.<br />All of above reasons lead to create several unbeneficial issues within the bill which were discussed section by section at the beginning. Ultimately these reasons collectively create a conflict situation in the BOI factories and the political parties who want to get the chance and advantage of the conflict, create a big struggle and that will cause to death of innocent employee of BOI. This situation guides the government to withdraw the proposed pension fund bill.<br />How could we Reintroduce the bill ?<br />(Conclusion)<br />All employees know that Pension scheme is a good superannuation for the secure of their retirement life. But employees have rejected that proposed act at initial stages. We have discussed the issues and problems as well as reasons for it. Then we have to think that how could reintroduce the proposed pension bill?<br />As government says they never closed up this concept. This is only a temporary withdrawal. Therefore it is important to think the way how it should come to activate in the future.<br />When it become active it should be reasonably beneficial for all the stake holders connected with private sector. All above discussed issues and problems should be solved in fair manner and employee should feel that the scheme is for their retirement benefits only, not for government investment purposes.<br />Before the act taken back, Government should create healthy industrial relations among employee’s trade unions and Employer’s representatives. Every party in the industrial relation should have a trust toward each other. Communication paths must be developed and before the bill introduced the parliament it should be well discussed among those parties and provisions and amendment should be added. Also proper administrative and reclaim method should be introduced. <br />If government can reintroduce it with such fair and reasonable manner, I’m sure that employee will never reject such a valuable superannuation benefit again.<br />References<br />Proposed Employee Pension Benefit Fund act<br />News paper articles with regarding to act.<br />http://www.asiantribune.com/news/2011/05/30/conflicting-views-prevail-proposed-private-sector-pension-bill-garment-sector-worker<br />http://www.nation.lk/2011/05/22/inter3.htm<br />