by Vindya Eriyagama and Ravi P. Rannan-Eliya
Demographic Transition and Pension Series
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.