By Dhananath Fernando
Originally appeared on The Morning
Cabinet has approved the drafting of amendments to the Employees’ Provident Fund (EPF) Act. The Government has indicated that the objective is to improve services and respond to present social, economic, and technological changes. The complete bill is not yet publicly available. However, this is a valuable opportunity to reconsider whether the EPF is designed around the institution or around the people whose money it holds.
For most private sector workers, the EPF will probably be the largest pool of savings they will ever own. It may finance a home, medical treatment, or their retirement. It is not a Government grant or a gift from an employer. It is part of a worker’s earnings, set aside every month for the future.
Therefore, every amendment should begin with one simple principle: your EPF is your money.
EPF returns
By the end of 2025, the EPF had a net worth of nearly Rs. 5 trillion. Just over 3.1 million member accounts received contributions during the year. Yet Sri Lanka’s labour market is much larger. Many informal and self-employed workers remain outside regular retirement savings arrangements, while gig and platform-based work have made the traditional definition of employment increasingly difficult to apply.
Compared with the main public sector pension scheme, which is financed from current tax revenue, the EPF is based on a more sustainable contributory principle. Employees contribute 8% of their monthly earnings, while employers contribute another 12%. That principle should be protected.
However, being contributory does not automatically protect the value of a worker’s savings. What matters is not only the interest rate shown on the statement, but what that money can actually purchase.
The EPF paid an interest rate of 9% in 2022. But annual average inflation was 46.4%. This produced a real return of approximately minus 25.5%. In 2023, the EPF paid 13%, but with inflation averaging 17.4%, the real return was about minus 3.7%.
Conditions improved significantly in 2024, when an 11% interest rate and inflation of 1.2% produced a real return of approximately 9.7%. The EPF declared 10.75% for 2025, when annual average inflation was slightly negative.
The lesson is not that the EPF always produces poor returns. Recent returns have been reasonable. The lesson is that a nominal interest rate can provide a misleading sense of security when inflation is high. Workers ultimately retire with purchasing power, not percentages printed on a statement.
There is also the question of how the money is invested. At the end of 2025, approximately 94.5% of the EPF investment portfolio was held in Government securities. This may be understandable given the size of the fund and the limited depth of Sri Lanka’s capital markets. Nevertheless, it means that workers’ retirement savings are heavily connected to the financial position of the Government.
Amendment priorities
Following domestic debt restructuring, the governance of the EPF can no longer be treated as a purely technical matter. The roles of administrator, custodian, investment manager, and regulator must be clearly defined.
Investment policies, costs, returns, and risks should be disclosed regularly in a form that an ordinary member can understand. Every member should have easy digital access to a complete statement showing contributions, returns, and performance against inflation.
The first priority of the amendment should be better service and enforcement. When an employer delays contributions, it is the employee who loses both money and interest. Digital matching of salary deductions and employer remittances, automatic notifications to employees, time-bound recovery procedures, and compensation for lost interest should be considered. A worker should not discover after retirement that contributions deducted from the salary were never remitted.
Accounts must also become genuinely portable. A person changing jobs should not be left with several disconnected accounts and paperwork accumulated over decades. A single member identity should follow the worker throughout his or her career.
The amendment should also begin a serious discussion about member choice. This need not mean dismantling the EPF or transferring the entire fund to private operators. The existing EPF can remain the secure default option. But, over time, members could be allowed to direct a limited portion of future contributions to licensed and regulated retirement funds.
Different workers have different needs. A younger worker may accept some investment risk for a potentially higher long-term return. Someone closer to retirement may prefer greater stability. Members could choose between conservative, balanced, and growth-oriented funds, including funds that automatically reduce risk as retirement approaches.
Choice without protection, however, is not genuine freedom. Private managers would require strict rules on capital, independent custody, fees, conflicts of interest, audits, and disclosure. Returns should be published after deducting all fees and compared against inflation and common benchmarks. The objective must be competition based on performance, not aggressive marketing.
Security of retirement savings
The changing labour market must also be considered. Self-employed people, freelancers, and workers with irregular incomes should have access to simple and flexible retirement accounts. Contributions could be made in smaller amounts through digital payment systems rather than requiring a conventional monthly employer-employee relationship.
The cost of creating formal employment also matters. For every Rs. 100 in gross earnings, Rs. 20 goes to the EPF – Rs. 8 from the employee and Rs. 12 from the employer. The employer contributes another 3% to the Employees’ Trust Fund, in addition to meeting gratuity obligations. Although these payments provide important benefits, the entire package affects the cost of hiring a worker.
Therefore, reform should not simply increase contribution rates. It should improve compliance, reduce paperwork, broaden coverage, and make formal employment easier to create.
Better-managed retirement savings can also provide long-term capital for productive businesses, corporate debt, infrastructure, and innovation. But retirement security must come first. EPF money should never be directed towards projects merely because they carry a development label. Every investment must be judged on risk, return, and the interests of members.
Retirement savings are not secure merely because the Government manages them. Nor are they automatically secure simply because a private company manages them. Real security comes from clear ownership, professional management, transparent accounts, sensible diversification, low fees, effective regulation, and member choice.
Above all, it requires low and stable inflation. No amendment to the EPF Act can fully protect workers if the value of money itself is repeatedly weakened. The best protection for the retirement savings of Sri Lankans is a stable rupee, supported by sound monetary policy.