The Employees’ Provident Fund (EPF), established under the Employees’ Provident Fund Act No. 15 of 1958, is Sri Lanka’s largest pension scheme, catering primarily to private and semi-public sector employees who lack pension benefits. By the end of 2022, the EPF’s assets were valued at 3.4 trillion rupees, rising to 3.9 trillion rupees by 2023. Contributions to the fund comprise 8% of an employee’s salary and 12% from the employer, amounting to 20% of the monthly income directed toward retirement savings. The EPF currently serves 2.7 million active contributors.
EPF: A Vital Yet Vulnerable Fund
Despite its pivotal role in securing employees’ futures, the EPF is grappling with significant challenges due to questionable investment practices. A forensic audit has unveiled major financial losses stemming from mismanagement. While the EPF collects vast sums, even a 10% misallocation results in substantial losses. Alarmingly, the Central Bank bond scam—a high-profile corruption case—resulted in a massive loss of EPF funds, with subsequent investigations revealing even greater losses from improper bond investments.
Investigations and Forensic Audits: What Do We Know?
The Central Bank bond scam was scrutinized by the Committee on Public Enterprises (COPE) and a Special Presidential Commission. However, neither investigation quantified the exact financial losses incurred by the EPF. Following recommendations from the commission, a forensic audit was initiated in 2019 to investigate EPF investments in the stock and bond markets.
The audit, conducted by private firms hired by the Central Bank, reviewed transactions between 2002 and February 2015. However, investments made after February 2015—when the bond scam escalated—were excluded from the audit. Critics suggest that Central Bank officials intentionally withheld information on post-2015 transactions, raising concerns about transparency.
The audit revealed significant losses, including 9,826 million rupees from irregular bond transactions between 2002 and 2015, and further losses from poor stock market investments. In total, irregular transactions led to nearly 20 billion rupees in losses. Importantly, this figure excludes the financial impact of the post-2015 bond scam.
Poor Investment Decisions Amid Stock Market Growth
Between 2009 and 2010, the Colombo Stock Exchange was one of the world’s best-performing markets, with the All Share Price Index (ASPI) growing by over 125% in 2009 and 96% in 2010. Yet, during this period, the EPF achieved returns of just 3% and 4% respectively. In 2010 alone, poor investment decisions resulted in a staggering 40 billion rupees in losses for the EPF.
The audit detailed instances of mismanagement, including EPF investments in overpriced shares of private and public companies. In one case, shares valued at 17 rupees were purchased at an inflated price of 209 rupees. Such decisions, allegedly influenced by senior Central Bank officials, underscore systemic issues in fund management.
Lack of Transparency and Accountability
Efforts to obtain details about EPF investments have faced resistance. Verité Research (Pvt) Ltd, under the Right to Information (RTI) Act, requested information on bond transactions between February 2015 and March 2016. However, the Central Bank declined, citing confidentiality concerns. The RTI Commission later directed the Central Bank to release the requested data, but compliance remains incomplete.
The Central Bank has yet to submit the EPF’s 2023 Annual Accounts Report, required within three months of year-end. This lack of transparency raises questions about the institution’s accountability in managing 3.9 trillion rupees—money belonging to the working people of Sri Lanka.
Taxation and Debt Restructuring: Unfair Burdens on Workers
Adding to workers’ grievances, EPF investments have been taxed since 1989, with the rate increasing to 14% in 2018. Most contributors, earning under 100,000 rupees monthly, view this tax as inequitable. Furthermore, Sri Lanka’s recent domestic debt restructuring, undertaken as part of an IMF program, disproportionately targeted the EPF. Unlike other nations, where employee funds are a last resort for debt restructuring, Sri Lanka prioritized EPF funds, causing further financial strain.
The Way Forward
Amid growing concerns, calls for a new forensic audit to investigate the 2015–2016 bond scam and associated EPF losses remain unanswered. While the Central Bank claims the EPF “voluntarily” participated in debt restructuring, critics argue that the institution, as a custodian and not the owner of these funds, had no authority to make such a decision.
Efforts to seek clarification from Central Bank Governor Dr. Nandalal Weerasinghe have been unsuccessful. Transparency and accountability are crucial to restoring trust in the EPF and ensuring the fund’s sustainability.
Conclusion
The EPF, a cornerstone of Sri Lanka’s retirement system, faces a crisis stemming from years of mismanagement, poor investment strategies, and a lack of transparency. Immediate reforms are necessary to safeguard the hard-earned savings of millions of workers and to prevent further erosion of trust in this critical institution.
