Higher EPF dividend reflects excellent investment strategy: Economist

PETALING JAYA: The Employees Provident Fund (EPF) dividend of 5.5% for conventional savings in 2023 is better than the previous year when it was only 5.35% and this shows improvement in performance following a challenging year, said Professor Geoffrey Williams, an economist at the Malaysia University of Science and Technology.

He said the dividend payout should be satisfactory for most members as it is higher than fixed deposit interest rate and provides higher return with lower risk than ASB at 5.25% for example.

“The total EPF payout for 2023 is RM57.8 billion which is 13% higher than in 2022 which was RM51.14 billion. It reflects an excellent investment strategy last year by the EPF team under the previous CEO Amir Hamzah Azizan who is now Finance Minister II,” Williams said, adding that the overall results of RM66.99 billion total investment income and RM57.8 billion payout is very strong and shows that a good portfolio management strategy involving domestic and overseas assets can continue to perform even in difficult circumstances.

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.

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.

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.

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,” he said.