Can EPF Handle The Current Challenges?

If there is one single body in the country that can be relied upon during a financial or economic crisis, then it surely has to be the Employees Provident Fund’s (EPF). The retirement fund has been pulling the government and its GLC’s out of situation multiple times over the decades, including during the 1997 Asian Financial Crisis and the early 2000 economic crisis led by the dot-com bubble.

Today the world is facing the mother of all crisis in modern history, the Covid-19 pandemic which forced governments across the globe to shutdown their nations causing unprecedented misery to citizens and businesses in order to suppress the spread of the virus. The cost of shutting down has been unimaginable, estimating into tens of trillions of US dollars and with the second and third wave prevailing the financial losses will only go up. To this the governments have little option but to provide stimulus and pump prime the economy with liquidity, key to safeguard people, jobs and the economy. In Malaysia, the government has been toiling to protect lives and livelihood while getting the economy back humming, various programs like PRIHATIN and PENJANA which are aimed to provide financial safety blankets have been rolled out. Budget 2021 next year will continue where we left of with even more incentives promised by the Finance Minister. To provide a leg up for those impacted by job loss and pay cuts, EPF is allowing its contributors to withdraw from their Account 1 under the i-Sinar initiative. A tricky proposal and something never done before but then again any nation will need all the tricks in its hat to manage these challenging times.

However, there are certain quarters questioning Ministry of Finance’s decision to allow the withdrawals, egged by politicians the decision was made after the parliament seating during the tabling of the Budget to have it pass through, but the question is was this a necessary? Some are asking if contributors investment be secure in the coming future, will dividends be as encouraging as they have been and will EPF fold over?

For this we have to look at the pension funds track record, since 1951 the statutory body has been functioning under MOF independently and quite resiliently, managing RM1 trillion in fund size making it the fourth largest in Asia and seventh largest in the world, EPF we have to admit has been performing remarkably well. Dividends has been steady and even outperformed some of the more active financial products out there, this is due to its diverse portfolio of where it invests its funds.

The retirement fund said guided by its Strategic Asset Allocation (SAA), it has always been diversifying its investments across domestic and global markets, with the consideration of its need to have sufficient cash flow at all times, including extreme times like this pandemic.

“Fundamentally, the EPF is a long-term investor and every investment decision made will continue to take into account its responsibility to sustain members’ funds even in unprecedented situations like this pandemic,” it said in a statement in relation to i-Sinar’s impact on its financial health.

Suffice to say, even with i-Sinar and its existing structure, there will be no impact to the domestic market. IF the future impact is the concern, EPF assures this will be mitigated when members plan ahead on how much is needed so that they can fulfil today’s needs while minimising the impact on their future retirement. Also members can top up later once they are better of, in fact the body will focus on replenishing Account 1 before reverting back to the 70:30 ration.

We can be confident MOF has fully thought through the impact i-Sinar will leave on EPF, the action taken today is to fix the problem we have in hand. The long term savings nature of the provident fund gives plenty of time for the Ministry to balance back the accounts in the future, we just have to trust the board and the Minister. Not everyone will be dipping their fingers in their retirement savings and even if all 14.6 million members were to withdraw, it wouldn’t be at the same time and besides funds keep coming every month keeping the body maintain its future plans.

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