EPF Dividend Allows Higher Social Protection, Income Security Fostering Greater Financial Resilience

The recent announcement by the Employees Provident Fund (EPF) on the dividend of 5.5% (2022: 5.35%) for conventional savings in 2023 reflects an excellent investment strategy last year by the EPF team under the previous CEO Amir Hamzah Azizan who is now Finance Minister II.

Improvement was seen in the total EPF payout for 2023 of RM57.8 billion which is 13% higher than in 2022 which was RM51.14 billion. The overall results of RM66.99 billion total investment income and RM57.8 billion payout is strong and shows that a good portfolio management strategy involving domestic and overseas assets can continue to perform  despite it being a challenging year.

As at December 2023, the EPF’s investment assets stood at RM1,135.82 billion, of which 62% were invested domestically and 38% internationally. Domestic investments generated RM31.71 billion, or 47% of total investment income, global assets generated income of RM35.28 billion, or 53%, of the total investment income recorded.

Further details on Account 3 which will be announced in April are keenly awaited.

The main factors were a more stable environment for EPF with no withdrawals, improvement in number of members and contributions which raised the investable funds and a good strategic asset allocation especially in overseas markets, which pushed up the returns.

Domestic equity markets have had very low returns so the EPF strategy has been more active to get better returns in local equity markets.

Malaysia University of Science and Technology Economist Professor Geoffrey Williams said it is a very good performance and shows recovery from the last few years. The long-term strategy is sound and in addition to the payout allows EPF some retained funds for reinvesting.

This year 2024 looks no more challenging than last year and possibly will be better. So, we can expect a similar return this year so long as EPF is free to follow its best short-term and long-term strategy without outside interference,” he added.

Malaysian Superfund

Williams said the strong financial results also show that if a separate new Malaysian Superfund of similar size was set up by combining underperforming GLICs the returns could solve the civil service pensions problems and even provide a Universal Basic Pension for everyone.

“If the 2024 EPF payout of RM57.8 billion could be achieved from a Malaysian Superfund it would be enough to pay the full civil service liability and provide a RM900 monthly pension for 80% of non-civil servant retirees,” he added.

He said a new Malaysian Superfund could even be run by EPF portfolio managers, and then the returns could be as good as these. “The sad side is that because of the EPF withdrawals policy millions of people cannot benefit because their accounts have been depleted,” said Williams.

The EPF also announced a RM708 million Government Additional Contribution Incentive for 1.4 million EPF members aged between 40 and under 55 with EPF savings of RM10,000 and below in their Account 1 as of Feb 24, 2023.

Williams noted that 1.4 million members will get a dividend bonus of RM500 each from this source but they will still have virtually nothing in their accounts. “This is why a Malaysian Superfund should be set up to help everyone, even those with no pension savings at the moment.”

The Malaysian Trade Union Congress (MTUC) lauded the announcement citing the 2023 EPF dividend that remains strong gives confidence to employees about the performance of their investment in the retirement savings, as well as indicates stable and improving economic growth.

MTUC president, Mohd Effendy Abdul Ghani said the increase in the sharia savings dividend to 5.40 per cent compared to only 4.75 per cent in 2022 could also attract more contributors to choose sharia savings in the future.

“We believe that stable economic growth will further increase employment opportunities and indirectly increase the number of EPF contributors, which we can see in 2023 has increased while production has reached pre-epidemic levels,” he said in a statement.

Mohd Effendy said EPF’s commitment to maintain a strong dividend gives certainty to employees regarding the growth of employee savings in the long term, especially retirement savings.

“It is to ensure that each contributor has a total savings amount of at least around RM240,000 when they retire,” he said.

“Contributor awareness is also necessary to maintain additional years in savings accumulation and productive employment will increase savings to enable a higher (savings) amount during retirement later.”

Bumiputera members’ median savings improve

The median savings of Bumiputera members aged below 55 wit the fund increased to RM8,254 in the financial year ending December 2023  (FY2023), from RM4,900 in FY2022 due to withdrawals during the Covid-19 pandemic. During the pandemic, the Bumiputera median savings dropped by 70%, from RM15,500 pre-pandemic.

Newly appointed EPF chief executive officer Ahmad Zulqarnain Onn told reporters that the median savings for Bumiputera has somewhat recovered compared to the previous year.

The median savings for Indian members has improved to RM17,375 in 2023 compared with RM14,900 in 2022, whereas for Chinese members, it has improved to RM48,627 from RM45,800 previously.

The pension fund also said that as of December 2023, EPF’s new member registrations amounted to 460,447, bringing the total number of EPF members to 16.07 million.

Out of that amount, a total of 8.52 million were active members, which now represent 50% of Malaysia’s 17.03 million labour force as at end-2023.

EPF chairman Tan Sri Ahmad Badri Mohd Zahir attributed the positive increase in the EPF’s active members to the EPF’s coverage expansion initiatives which ensured that more individuals have access to proper social protection and future income security, thereby fostering greater financial inclusivity and resilience across society.

“The EPF’s ongoing efforts to widen coverage can also be seen through the encouraging growth of its i-Saraan programme, which allows workers in the informal sector or those with no formal income to save for their retirement with the EPF. In 2023, the number of i-Saraan participants recorded a substantial increase of 31% to 382,983, from 291,743 in 2022,” he said.

Overall, total contributions increased to RM97.56 billion in 2023, an improvement of 15% from 2022.

Meanwhile, Ahmad Zulqarnain said work is underway to further ensure potential support for the weak ringgit through repatriation of its funds.

The EPF chief executive officer felt that the ringgit is undervalued. “How we would manage our investments (is by) always making a call on the assets value before falling short of disclosing details regarding any repatriation plan, citing confidentiality.

Ahmad Zulqarnain while foreign exchange rates are not the sole factor in investment decisions, they do play a significant role. And, when an asset is undervalued, the EPF tends to capitalise on such opportunities by realising profits from investments. “The principle is that when an asset is undervalued we tend to take profit.

As at December 2023, the EPF’s  domestic investment increased to RM702 billion for 2023 from RM643 billion while foreign investment rose to RM433 billion from RM359 billion registered in 2022. The EPF’s investment assets stood at RM1.14 trillion, of which 62 per cent was invested domestically and 38 per cent invested internationally.

This follows Bank Negara Malaysia governor Datuk Abdul Rasheed Ghaffour, saying last week, the ringgit was undervalued and ought to trade higher given its positive economic fundamentals and prospects.

The central bank said it had stepped up engagements with government-linked investment companies, government-linked companies, corporations and investors to encourage continuous inflows to the foreign exchange market.

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