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Investment of EPF Funds

"It has been brought to our notice that statements have been made recently indicating that EPF members numbering 9 million might lose their life long savings by the EPF's investments of the funds amounting to Rs. 222.9 billion as at the end of 2000 in Government securities. Since these statements could mislead the members by creating an unfounded fear among them, it is considered necessary to present the actual facts relating to these investments, states a press release issued by the Employees' Provident Fund - Central Bank of Sri Lanka.

It further states: "The practice of EPF since the establishment of the Fund in 1958 to date has been to invest the funds of EPF in Government securities and Government guaranteed securities in order to ensure the full safety of the funds belonging to the members.

Government securities are the best method of investment which is absolutely risk free with respect to the payment of interest or the repayment of the principal. Since Government securities give the highest level of safety to investors, they are also referred to as gilt-edged securities meaning that they are as safe as gold. Even though investments in private sector securities may generate a higher rate of interest, they also carry a higher level of risk. Hence, from 1958 to date, the policy of the Government has been to invest the EPF funds mainly in Government securities in order to ensure the repayment of benefits to the workers.

The Fund invests its monies in securities of this nature in order to maintain a hundred per cent repayment capacity. Having followed this policy the Fund has invested 98% of its investments in Government securities. Since the Sri Lanka Government has never defaulted its loans, the investments represented by such securities should not create any fear or doubt in the members regarding the safety of their savings.

The investment of EPF funds and the maintenance of accounts on behalf of the members have been entrusted to the Monetary Board of the Central Bank by the EPF Act. The annual accounts of EPF are being audited by the Auditor-General of the Government of Sri Lanka. The final accounts of the EPF are regularly presented to the Parliament by the Minister of Labour for review by the Public Accounts Committee. Further, the operations of the Fund are also reported annually in the Central Bank Annual Report.

Half yearly statements of accounts indicating the amount lying to the credit of the members are also issued by the Fund to the members. Furthermore, members could at any time inquire their member balances from either the Central Bank or the Department of Labour.

As at the end of 1994, the monies credited to the members' accounts amounted to Rs. 85.3 billion. As at the same date, the value of investments amounted to Rs. 81 billion. The difference amounting to Rs. 4 billion was represented by other assets of the Fund. These other assets consisted of the interest income relevant to the period but would be received by EPF on a future date. This is the standard accounting practice to recognise such income.

The comparable statistics as at the end of 2000 have been as follows: member balances amounted to Rs. 222.9 billion: investments amounted to Rs. 214.8 billion and other assets representing the interest relevant to the year but to be received on a later date amounted to Rs. 8 billion. These accounting principles have been fully disclosed in the final accounts of the EPF.

In summary, the following are also included:

(1) EPF has invested 98% of its funds in very safe Government securities: The balance 2% has been invested in other private securities and quoted company shares.

The risk of the latter category may be higher, but it would also carry a higher rate of return. Hence, it would augment the income to be received by the members. In 2000, EPF paid a rate of interest of 11.5% on member balances.

(2) The Central Bank of Sri Lanka has the responsibility of properly investing EPF funds ensuring their full safety. Since the Government has never defaulted its loan liabilities, members need not have any unfounded fear about the loss of their savings.

It should be noted that all governments repay their loans out of income raised from future taxation or borrowing.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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