Sunday Sep 22, 2024
Sunday Sep 22, 2024
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The CBSL said it categorically rejects all the accusations and insinuations levelled at the EPF by this politician and contained in the above story. Further, the EPF wishes to inform its members and the general public not to be misled by these regular and vituperative allegations made by a certain politician with obvious political motives. Each of these accusations are laid bare below with the facts and figures in order to enable the general public to appreciate that there is no truth whatsoever in the allegations made by the particular politician.
The assertion that the EPF Act is to be amended to discontinue the lump sum payment method currently being adopted on account of the alleged liquidity constraints faced by EPF is absolutely false.
The claim that the EPF is in danger of facing a liquidity constraint in the near future is also an utter falsehood. If the total cash inflow including investment maturities is considered, in fact, refunds as a percentage of total cash inflow has decreased from 9.3% in 1990 to 8.8% in 2011, clearly debunking the “bogus liquidity crisis” and substantiating the strengthening of the liquidity position of the EPF over time.
Positive cash inflow
The EPF has a net positive cash inflow and will continue to have such a flow in the foreseeable future as well. In fact, the cash inflow of Rs. 182 billion in the form of contributions and investments and a cash outflow of Rs. 50 billion in respect of refunds in 2013 respectively, resulted in an excess net cash flow of Rs. 132 billion. Furthermore, 93% of the EPF’s investments are in government securities which are very liquid. Therefore, the EPF will never face a liquidity issue that would pose any stress in making refunds to retiring members.
The EPF is prudently and professionally managed in line with laid down policies, guidelines, and structures by professionally qualified staff, and there have been absolutely no losses incurred by the EPF in its entire history. On the contrary, the EPF has been earning billions of rupees of profits each year, paying above market rates of benefits to its members consistently over the past. For example, for the past five year period alone, the EPF has earned profits of Rs. 558 billion, and furthermore, no institutions of a comparable asset base have ever made similar profits in the country.
11% interest rate paid to members
The rate of interest paid on member balances has decreased recently due to gradual maturing of high yielding government securities invested in when interest rates were very high. Despite this situation, the EPF has been able to provide its members a higher rate of 11% relative to the NSB fixed deposit rate of 9.50%. Furthermore, the EPF has been able to give its members a positive real rate of benefits in the recent past. It should also be noted that the increase in contributions received will only lead to an increase in profits in absolute terms, but not in relative terms. Accordingly, the profits of the EPF in absolute terms has increased from Rs. 107.5 billion in 2010 to Rs. 125.9 billion in 2013.
Incomplete EPF accounts “fabrication”
The claim that “the 2011 EPF accounts presented to the legislature in May this year had a qualified opinion from the Auditor General (AG) which indicated that he was not satisfied with the incomplete information provided to him” is also a total fabrication, since similar comments have been given by the Auditor General since 2001, although the word “qualified opinion” has not been used by him. In fact more audit observations were given earlier under the relevant section, than now. Further, these observations mostly relate to unsettled balances arising out of errors and omissions on the part of employers and members.
Further, in evaluating the performance of a provident fund, the total returns of the fund must be considered, without dissecting the individual items in a large portfolio, on a selective or piece-meal basis. In that context, it must be appreciated that what matters in the final analysis is as to whether EPF was able to earn a high rate of return for its members, relative to such other similar funds. Accordingly, it is abundantly clear that the trust placed in the Monetary Board of the Central Bank by the EPF Act has been well-founded in the past, and will be preserved in the future too.
