ETF Board chairman replies
‘Convert EPF into pension scheme’

Apropos the letter to the editor of ‘The Island’ of August 29 under the above caption, by reader EGK of Kelaniya.

The reader seems to be in the dark as to all what had happened during the last sixteen months since the new management took over the ETF Board as well as why the plans for the amalgamation of the two were mooted. A quick perusal of the numerous interview and press articles about the ETF and the Financial Statements of 2002 and 2003, 1st half (published in the media), would have provided all the answers to his many questions.

We are compelled to enlighten him due to his abysmal lack of knowledge on issues, on which he prefers to dish out solution! He raises mainly three points: (1) The unwieldy collection mechanism of the EPF and ETF (2) The Annual Member Statements (AMS) for the ETF are in arrears and (3) whether both these funds could be converted to a Pension Fund?

Collection

The ETF Act of 1981 provides for a remittance by employers of 3 percent of employees’ salaries, while the minimum contribution to the EPF is 12 percent. Where employers prefer to contribute more than the minimum to the EPF, as in the case of some private sector firms, for instance 15 percent. Then the employer may deduct the 3 percent from the EPF remittance and direct it to the ETF. In our many years of working life, not many private employers had resorted to this practice.

AMS

EGK accuses the ETF Board of total incompetence in fund management. The basis on which he had drawn this conclusion defies logic. Suffice to say that the restructuring had, in 2002 yielded an increase in Investment income of 16 percent — 17 percent and collection of 12 percent and Benefit claims turnaround within 21 days on a consistent 60 percent — 65 percent throughout this period. The employer compliance rate had not only shot up, but had resulted in a 108 percent increase in Surcharge income. Whereas before March 2002, the Branch network of 11, had only one branch (Gampaha) operating on a surplus, all others were incurring losses. After the restructuring, all branches were operating at a surplus, with the exception of Galle, however in 2003, the Galle branch too has come good.

The mystery of the delayed AMS can be traced back to the mid eighties when the manual system was converted to an automated system and subsequently to the I series IBM servers in their present form, when most of the irreconcilable FII (Six monthly returns) forms were backlogged. Some of the R4 (Monthly returns) forms too were backlogged. The problem was compounded by Member Administration Software System (MASS), which was dysfunctional. This was mainly due to the programming not being completed by the Indian vendor and due to the severe limitations of the local agent to service the software issues in the late nineties. The posting of AMS, which was done mostly manually, came to a standstill in late 1998. The status quo at present is that, around 300,000 AMS are being posted per month since we revived the manual processing from June 2002. We have also outsourced the backlog, running to millions of transactions (reader EGK must realize that this is a problem inherited by the present Board of the ETF) to private vendors after due evaluation of their capacities to resolve these entries and process them. The targeted completion date is December 2003. After these transactions are fed into the main MASS, member statements will be generated for the 2.2 million members on a current basis. Member balances will also be posted on our Website in the future, for authorized employers to verify at any given time.

Pension Fund

The amalgamation of EPF and ETF funds will make the monthly remittance much easier for all employers. Treasury management too would be effective, where a larger slice of the total fund would be available for investment in high yielding instruments. Obviously giving the member a higher return and dividend at the end of the year while safeguarding the capital.

Whether the government will form a pension scheme is altogether a different issue? The worldwide trend nowadays is to allow the individual to plan his/her pension fund, where he/she has an employer component and another from his savings to augment his/her terminal benefits, on retirement.

I do hope EGK will wake up to the realities at least now. He is most welcome to meet out Customer Service Manager (Asoki Wickremasinghe) at ETF by prior appointment. (Her telephone no: 2368037) during office hours.