Amendment to EPF Act to extend the retirement age opens can of worms

The government’s proposal to amend the Employees’ Provident Fund (EPF) Act to extend the retirement age of private sector employees both men and women up to 60 years has brought several crucial issues into the limelight.

Finance Minister and Prime Minister Mahinda Rajapaska in his 2021 budget speech said the retirement age of private sector employees would be raised to 60 years based on the life expectancy which is 72 years for men and 77 years for women.

However, it was not clear as to whether the private sector employees are allowed to withdraw their EPF money after the previous retirement age of 55 years if they opt for early retirement.

Although it is a good proposal for the private sector workers, it should be made optional for them obtaining early retirement according to their wish without blocking it until they reach 60 years of age, Anton Marcus – Joint Secretary of the Free Trade Zone and General Services Employees Union told the Business Times.

This proposal should not be another attempt to use private sector employee’s life savings by the state to borrow funds at lower rates to bridge the deficit or any other purposes, he added.

He said that this matter will be brought to the notice of the next Labour Advisory Council (NLAC) meeting which is the tripartite apex body to discuss policy-related labour matters and advise the Minister of Labour.

This move will help the government to block Rs. 500-600 billion of refund money in the EPF to utilise it for public affairs, a financial analyst said.

It could be used to borrow funds from the EPF at low-interest rates, and invest them as well as utilising it for debt repayments, he added.

The EPF represents the largest source of funds for government domestic borrowing, exceeding even the amounts contributed by savings institutions and commercial banks.

As the increase in the working age population and thus the workforce and the growth of the formal sectors result in increased contributions to the Fund, the incentive to remove political interference with the EPF remains low.

As a result, the defined contribution features of the EPF have been seriously undermined and a widening gap has emerged between the notional and actual performance of the EPF over time, an Economic Analysis report revealed.

Earlier there were attempts to compulsorily retire workers at 55 years instead of giving extensions of service till 60 years which was once, the practice.