Short answer

• Use the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF) as the low‑cost foundation for retirement savings, then top up with private pension products (occupational/personal pension schemes, unit‑linked pension plans) and/or an annuity from a regulated insurer to fill gaps (income-for-life, inflation protection). (cbsl.gov.lk)

Key facts you should know (with sources)

• EPF/ETF are the main national schemes for private‑sector workers: EPF is a mandatory defined‑contribution provident fund with combined employer+employee contributions of 20% (12% employer, 8% employee). EPF balances are paid as lump sums at retirement (not as lifetime annuity by default). ETF is a separate employer‑paid scheme (3%) oriented more to short/medium term welfare and benefits. (cbsl.gov.lk)
• EPF/ETF returns have in recent years been attractive in nominal terms (e.g., EPF credited double‑digit rates in the early 2020s and reports show ~10–11% nominal returns for 2023–2024), but real return depends on inflation; lump‑sum structure provides no automatic longevity (lifespan) protection. (economynext.com)
• Private insurers in Sri Lanka sell retirement products in two main shapes: (a) pension/retirement savings plans (unit‑linked or with guaranteed elements) that build a fund you can withdraw or convert; and (b) annuities (immediate or deferred) that convert a lump sum into a guaranteed regular income for life or for a guaranteed period. Many insurers advertise “pension” plans with additional riders (health, death cover). Examples: AIA, Softlogic, HNB, SANASA, etc. (aialife.com.lk)

Pros and cons — EPF / ETF (public funds)

• Pros
  • Mandatory (for covered employees) and automatic payroll deduction; predictable base savings.
  • Very low management friction — no sales commissions to you; administered centrally (CBSL/EPF administration). (cbsl.gov.lk)
  • Historically steady nominal returns and very large asset base (scale). (cbsl.gov.lk)
• Cons
  • Lump‑sum payout at retirement → exposes you to longevity risk (running out of money if you live long).
  • Limited flexibility: self‑employed/informal workers have poor access; withdrawals and loan facilities can reduce retirement balances. (ceylontoday.lk)
  • No built‑in inflation‑linked income and limited choice of investment strategy by the individual.

Pros and cons — Private pension funds / occupational schemes

• Pros
  • Can be designed as defined‑contribution occupational plans or personal pension accounts; more individual control over contribution level, investment choices (depending on plan).
  • May offer a range of investment funds (equity, bond, mixed) and the option to receive income or buy an annuity at retirement.
  • Good for topping up the EPF/ETF base and achieving higher long‑run returns if you accept market volatility.
• Cons
  • Fees, sales commissions, and fund management charges can materially reduce net returns — compare expense ratios and charges carefully.
  • Products marketed as “pension” vary widely (unit‑linked vs guaranteed), so features and actual retirement income differ.

Pros and cons — Annuities / insurance pension products

• Pros
  • Provide guaranteed lifetime income (remove longevity risk) if you buy an annuity from a creditworthy insurer.
  • Some products bundle life cover, riders (health, premium waiver), and options for guaranteed increases.
  • Useful for converting part of a lump sum into predictable monthly income.
• Cons
  • Annuity purchase is irreversible: you give up capital in exchange for a predictable stream; payout depends on insurer pricing, interest rates, longevity assumptions.
  • Insurer credit risk; inflation erosion unless the annuity has inflation indexing (which usually reduces starting income).
  • Insurers’ unit‑linked pension plans may carry high charges and sales loads.

Tax and legal points (practical)

• EPF contributions are mandatory and treated under Sri Lankan social security rules; EPF/ETF balances and credited returns follow EPF/ETF rules (check current dividends/interest credited each year). (cbsl.gov.lk)
• Under Sri Lanka’s pension framework (three‑tier concept), a portion of retirement benefits in some schemes must be used to purchase an annuity for guaranteed income — check the specific scheme rules that apply to you (public sector vs private occupational vs third‑tier personal pension). (thebftonline.com)

How to choose — practical decision flow

1. Start with the EPF/ETF: treat those balances as your base/core retirement pot (you likely have no choice if employed under contract). (cbsl.gov.lk)
2. Estimate goals and gaps:
   • Make a retirement income plan: desired monthly income (in today’s rupees), expected EPF lump sum, other savings, and anticipated retirement age.
3. Decide allocation of the lump sum at retirement:
   • Keep a portion liquid for emergencies and planned large purchases; convert a portion to an annuity to secure base lifetime income; invest the rest in privately managed funds or low‑cost unit trusts for growth and inflation protection. (Many schemes allow partial annuitization.) (pensionfund.org.ls)
4. If buying private pension products or annuity:
   • Compare effective costs (charges, surrender penalties), projected net returns, guaranteed elements, and insurer credit rating/solvency.
   • If you buy an annuity, ask for a cash‑flow quote under different scenarios (life expectancy, inflation) and check whether there is a guaranteed payment period or spouse reversion. (aiicoplc.com)
5. Diversify sources: combine EPF/ETF (base), invested pension funds/unit trusts (growth), and a partial annuity (longevity protection). This balances liquidity, growth potential and guaranteed income.

Red flags and questions to ask insurers/plan providers

• What are the total charges (entry commission, management fee, mortality cost, surrender charges)?
• Is the annuity indexed to inflation and if so, at what rate? If not indexed, how will you protect purchasing power?
• What is the insurer’s solvency/credit rating and claims history?
• What surrender/withdrawal rights exist if your circumstances change?
• For unit‑linked pension funds: what is the historical net return after fees, and what benchmarks are used?

Concrete next steps you can take this week

• Pull your latest EPF/ETF statement and estimate the lump sum at retirement using your latest credited interest rate/projection. (CBSL/EPF website has program info and historic credits.) (cbsl.gov.lk)
• If you’re employed without occupational pension beyond EPF/ETF, consider: (a) a personal pension / voluntary private pension account, or (b) systematic investment in low‑cost mutual funds to top up retirement savings.
• When you’re within ~10 years of planned retirement, request annuity/retirement quotes from 2–3 licensed insurers and compare net monthly income, indexing, guaranteed period, and fees. Use the insurer product brochures and ask for an itemized fee schedule. (aialife.com.lk)

Bottom line (one‑paragraph) EPF/ETF should be the foundation because they are large, mandatory and low cost, but they pay out mainly as lump sums and don’t solve longevity risk. Private pension funds and unit‑linked plans are useful to top up savings and seek higher returns (at higher cost and risk). Annuities from regulated insurers convert capital into lifetime income and are the best tool to remove longevity risk — but shop carefully for fees, indexing and insurer strength. A mix (EPF base + invested top‑ups + partial annuitization) is usually the most practical, flexible approach.

If you want, I can

• run numbers for your situation: show how an EPF lump sum plus a private top‑up and a partial annuity would translate into monthly income (I’ll need your age, current EPF balance and target retirement age); or
• compare 2–3 specific Sri Lankan insurer pension/annuity products side‑by‑side (I can fetch the latest product brochures and quotes).