KARACHI, Sept 30: The federal government has allowed the Employees Old-Age Benefits Institution (EOBI) to diversify its investments so that a better return could be obtained which, in turn, could be used to improve payouts to its beneficiaries -- the pensioners -- it has been reliably learnt.

According to sources, the EOBI has been allowed to invest in the stock exchange (share market) more liberally and in real estate development, both of which, though risky, could earn hefty returns if investments were made carefully and transparently.

The sources said that the EOBI, set up in 1976 to provide a safety net to retirees who had been registered with it during their employment, had been operating satisfactorily, except for a few blunders, among which was the fraud committed by its officials who took away over a billion rupees some time back, though a major chunk of it had been recovered.

The EOBI registers the organization, which submits a certain amount as its contribution to the EOBI for its employees, who get the pension when they retire attaining the age of 60.

The EOBI has so far collected over Rs33 billion from over 56,000 organizations having over 1.7 million registered workers and has so far disbursed – as old age pension, invalidity pension, survivors’ pension, old age grants, etc – over Rs21 billion among its beneficiaries. At present, over 248,000 people were receiving benefits.

The EOBI had collected over Rs4.8 billion and disbursed approximately Rs3.5 billion during last year.

The organization used to invest the surplus funds into government securities and over the years its surplus has been swelling. At present it stands at over Rs133 billion. The lowest amount paid as pension to a worker which, a few years back used to be around Rs700, was being revised continuously and now it stood at Rs1,500 per month.

Risky business

The sources -- pointing to the ability of manipulation of vested interests in the stock market -- said that a company, having a good financial record, stood at around Rs200 a share a couple of years ago, but now it was selling at less than Rs40 per share.

A leading stock market analyst, requesting anonymity, said that there was no doubt that there were more risks in investing in the stock market compared to government securities, but then returns were also substantially higher.

He said that while returns from the government securities ranged between 6 and 8 per cent, in the stock market it could be around 25 per cent.
He said that the risk could be managed properly by an efficient manager who would have a broad investment portfolio.

The EOBI has also started investing in real estate and had purchased land in different cities. It plans to develop the land, add value to it by constructing buildings and selling the product in the open market to get maximum profit.
A few days ago the foundation stone was laid for a high-rise building at the site of the old head office of the EOBI at Nursery off Sharea Faisal.

The sources said that the EOBI wanted to enhance its earnings on its investments as a study had shown that the EOBI, which, at present, was collecting more in contributions from the employers than it was disbursing as benefits among the workers, would soon reach a saturation point where its annual collections would be less than the disbursements. And as the number of beneficiaries would continue to rise, the study pointed out that by 2025, its funds would start depleting and by 2030 these would run out.

‘Investments in good hands’

Responding to Dawn’s queries, an EOBI spokesperson said that highly professional people, who had been provided enough liberty to work and take immediate decisions, had been hired to handle the investments, so there was no or minimal risk involved. Only reputed companies showing good financial results in the past few years would be chosen for investment.

He said that in real estate investment, the EOBI had purchased land from the government organizations and after value addition – construction of buildings – it would be sold and a substantial profit would be earned which eventually would be used for the benefit of the workers and pensioners. He said that real estate prices also rise with the passage of time and rarely did the prices come down, so there was no or minimal risk involved in this sector also.

The sources, however, remained sceptical regarding the justifications being given by the EOBI for diversifying its investments and entering the stock market and construction business.

They said that earlier, at least there was a guaranteed return, though less in percentage, from the government securities. But with the stock market, the risk factor has also entered; the track record of government organizations doing business was not very good and even some those which did not have substantial competition in the field were facing losses.