Sri Lanka: Pension system in 2020
Employees in the formal private sector are covered by defined contribution plans: Employees Provident Fund, which is used in the model, Employees Trust Fund or approved private sector provident fund. Civil servants were formally covered by public sector pension scheme.
At age 55 for men and 50 for women.
Defined contribution
Employee’s provident fund is a fully-funded defined-contribution plan and employees contribute 8% of wage and employers pay 12%. The entire lump sum, including interest, is paid at the time of exit. The annual interest rate must be at least 2.5%. For comparison with other countries, for replacement rate purposes the pension is shown as a price‑indexed annuity based on sex-specific mortality rates.
Social assistance
Senior Citizens over 70 years old, and whose monthly income is below LKR 3 000 are eligible for a monthly payment of LKR 2 000.
Early retirement
At any age if the government closes the place of employment, if emigrating permanently, or for employed women who marry.
Late retirement
It is not possible to start claiming pension after the normal pension age.
Taxation of workers
There is no income tax relief and the deduction of work-related expenses.
Taxation of worker’s income
There is a personal allowance of LKR 500 000 with additional income taxed as follows:
Social security contributions payable by workers
Employees’ contributions are deductible up to a limit of LKR 25 000 per annum.
Taxation of pensioners
All purchased annuities of retirees are exempt.
Taxation of pension income
Social security contributions payable by pensioners
Pensioners do not pay any social security contributions.
Note: Real rate of return 3%, real earnings growth 1.25%, inflation 2%, and real discount rate 2%. All systems are modelled and indexed according to what is legislated. Transitional rules apply where relevant. DC conversion rate equal 90%. Labour market entry occurs at age 22 in 2020. Tax system latest available: 2020.
Source: OECD pension model.