Pension For Private Sector Workers; Maithri’s Promise is More Sensible Than Mahinda’s

By Hema Senanayake -December 13, 2014

Hema Senanayake

A pension is an arrangement that is designed to prevent old-age poverty.Maithripala Sirisena now promises to pay pensions for private sector retirees during their old age. He made this promise in a city call Hettipola during an address of a public rally held on December 12th.

President Mahinda Rajapaksa has a different view. His view was documented in the government budget which was passed by the Parliament in a few weeks ago. He suggests that workers should save for the retirement and deposit it in Bank of Ceylon (or government bank) and he would ensure that the Bank would pay 12% of interest while the market rate of interest for deposits is much lower. The retiree must live on interest income. The plan is simple but economically it is the most ludicrous one I ever heard of.

For a moment forget about the President’s plan. Dr. P.B. Jayasundera the Secretary to the Ministry of Finance also has a plan. He knows well that 12% of interest rate which is a directive rate of interest based on whims and fancies of government bureaucrats cannot prevail for long. Therefore he suggests that workers should try to invest their savings in the Stock market and to make money during their old age. In fact this was what was done by EPF and ETF as institutions during past few years and have recorded severe losses by now.

Is the proposal made by Maithripala Sirisena a viable one? This must be the question that you have in your mind. Usually economic theory gives us more clarity to put new policies and programs in place. Hence, let us investigate the issue of old-age poverty with a little bit of economic theory.

At any given time, the economic system produces two kinds of products. Those are: (1) products for consumption and (2) products for the use of production (for example capital goods etc.).Read More