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Farmers
and fishermen comprise 25-30 per cent and 1 per cent of
the workforce in Sri Lanka, or approximately 2.0-2.4 million
and 0.1 million respectively. Most are self-employed, with
income in both occupations usually seasonal and subject
to many factors beyond their control. Both occupations involve
hard physical work, and many continue working beyond the
age of 60 years. The Farmers’ and Fishermen’s
Pension and Social Security Benefit Schemes were established
by successive acts of legislation in 1987 and 1990. The
objectives were to provide a minimum level of social security
and provision in old age for workers, who had no access
to other formal schemes. Both Schemes are administered by
the Agricultural and Agrarian Insurance Board (AAIB), with
overall supervision provided by the Ministers in charge
of Agriculture and the Department of Fisheries.
The Farmers’ Pension Scheme targets
farmers whose main source of income is agriculture including
livestock farming, with some exclusions such as owning more
than certain stipulated limits for land ownership, or being
covered or eligible for enrolment in EPF or any other pension
scheme. The Fishermen’s Scheme targets fishermen.
Both schemes restrict enrolment to those aged between 18-59
years.
In both Schemes, contributions are fixed-level
payments which do not change once set, according to the
age at enrolment, and must be made twice yearly in the Farmers’
Scheme, and quarterly in the Fishermen’s Scheme. They
range from Rs. 260/= per year if enrolling at age 18 to
Rs. 1,380/= per year if enrolling at age 59. To receive
the final benefits, members make all contributions, although
considerable leeway is provided for defaulters to make good
their payment history. Members must maintain contributions
up to the age of 60 years, when they are entitled to receive
a pension, unless they enrol between the ages of 55 and
59 when the vesting period is 5 years.
The major benefit in both Schemes is the
pension, in addition to which some disability benefits such
as gratuity and disability pensions are provided. The pension
is a monthly payment, the level of which is fixed at the
time of enrolment. According to the schedules in both Schemes,
the earlier the age of enrolment, the lower the fixed-level
contributions, and the higher the ultimate pensions. In
the Farmers’ Scheme, the fixed level pension varies
from Rs. 1,000/= per month to Rs. 4,167/= per month. For
the Fishermen’s Scheme, it varies from Rs. 1,000/=
per month to Rs. 4,167/= per month. There is a survivor
benefit in that both pensions are payable to surviving spouses
till their death. The contribution schedules have not been
changed in either scheme since inception, but the pension
schedules have been revised by raising the minimum pension
benefit repeatedly to a minimum of Rs. 1,000/= per month
currently.
Contribution collection is decentralized,
and has in part been delegated to other government agencies,
including the Postal Department. Both schemes mainly rely
on field officers from the AAIB or from the supporting government
departments to collect contributions. Collected contributions
are paid into separate pension and social security funds
maintained by AAIB. Most funds are invested in deposits
at state banks or in Treasury Bills, with the AAIB required
to follow the advice of the Finance Minister in making investments.
Both Schemes charge their administrative costs to the gross
investment returns achieved. Net returns on investment after
these administrative charges are similar to the gross return
on members’ accounts paid by EPF. The government made
capital commitments at inception to both schemes to aid
their financial sustainability, but only one third of these
were actually paid, and the government has advised both
schemes not to expect further funding.
Member records are maintained mostly on
a manual and decentralized basis. The Farmers’ Scheme
in particular lacks an efficient information system, and
is not in a position to monitor defaults in a timely manner.
In addition, the lack of computerized information systems
ensures that both schemes lack ready access to detailed
information on the profile and payment histories of members,
and thus cannot efficiently monitor risks and potential
liabilities of the Scheme. Work is ongoing to computerize
the Farmers’ Scheme, but funding appears insufficient
for the scale of the task. Additional improvements are also
required in the handling of contribution collections, as
significant delays in receipt of funds by AAIB have been
noted.
The Farmers’ Scheme has enrolled
675,000 members out of an AAIB-estimated eligible 1.2 million
farmers (56 per cent coverage), and the Fishermen’s
Scheme has enrolled 48,000 out of an estimated eligible
115,000 population (42 per cent coverage). This is substantial,
but excludes half the agricultural and fishing workforce.
Coverage appears to be quite variable across the country
and in the less developed provinces much lower. In addition,
approximately 30-40 per cent of members in both schemes
may have defaulted.
The Schemes have two major deficiencies.
First, neither Scheme will provide adequate replacement
income for most members, as the pensions being provided
are too low, and in addition are not inflation protected.
The major reasons for the low replacement level are the
low contribution amounts and the short vesting period. Second,
at current contribution levels and given likely increases
in life expectancy, there will be insufficient funds to
honour pension commitments made to existing members. There
is an estimated funding gap of at least a billion rupees
in current rupees, based on current enrolments.
Table of Contents:
- Executive Summary
- Establishment and Organization of the Farmers’
and Fishermen’s Pension Schemes in Sri Lanka
- Farmers’ Pension and Social Security Benefit Scheme
- Fishermen’s Pension and Social Security Benefit
Scheme
- Assessment of Ability of Schemes to Provide Social Security
- Recommendations
- Bibliography
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