Cannot guarantee projected returns for pension funds - CBSL Governor tells CoPF

Saturday, 9 September 2023 00:54 - - {{hitsCtrl.values.hits}}

Assures CBSL will endeavour to attain the projected return
Reveals discussions are ongoing to explore possibility of Treasury intervening to ensure promised returns until 2025
Claims DDR would cause EPF bond portfolio to lose approximately 4%

The Inland Revenue (Amendment) Bill secured approval through a majority vote during the Committee on Public Finance (CoPF) meeting held in Parliament under the chairmanship of MP Dr. Harsha De Silva on Thursday.

Notably, Committee member MP Patali Champika Ranawaka abstained from voting.

During the CoPF sitting, officials from the Central Bank clarified that the 30% tax increase, as outlined in the Internal Revenue (Amendment) Bill, specifically pertains to the interest income generated from the bond portfolio.

Additionally, it was highlighted that this tax rate would be lowered to 14% in cases where pension funds engage in the domestic debt restructuring process.

During the session, the committee also raised inquiries regarding the Central Bank’s capacity to assure a 12% return until 2025 and a 9% return thereafter to pension funds involved in domestic debt restructuring.

In response, the Central Bank Governor Dr. Nandalal Weerasinghe expressed their commitment to endeavour to attain the projected return, though they could not provide a guarantee for every member.

He also noted that there were ongoing discussions about the Treasury intervening to ensure the promised benefit is upheld until 2025 if it becomes challenging to maintain this rate.

The Committee suggested that an inflation-adjusted interest rate should be explored to guarantee a positive return for members of the Employees’ Provident Fund.

The Central Bank Governor disclosed that if the Employees’ Provident Fund engages in the local debt restructuring, the opportunity loss for the EPF bond portfolio would be approximately 4%.

Nevertheless, he said if the EPF opts not to partake, the opportunity loss for the bond portfolio would escalate to 21%, primarily due to the elevated tax rate of 30%, as per the recent amendment to the Inland Revenue Bill.

Furthermore, it has been noted that all pension funds not qualified for domestic debt restructuring (DDO) would be subjected to a 30% tax increase. This could potentially discourage the creation of new pension funds in the future.