Monday, May 23

The rundown on EPF withdrawals

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In a Facebook post on Sunday, April 17, the Finance Minister said that he had received a lot of comments and messages on social media asking if the disbursement could be made faster. — Bernama photo

THE latest round of special withdrawals via the Employees Provident Fund (EPF) was announced by Prime Minister Datuk Seri Ismail Sabri on March 16 as a means of allowing the public quick access to much-needed liquidity.

Under the previous three rounds – i-Lestari, i-Sinar and i-Citra – implemented since the Covid-19 outbreak in 2020, some 7.34 million members have had withdrawn RM101.1 billion to date.

Four this fourth disbursement, the EPF said it has received 5.3 million applications under the Special Withdrawal facility to withdraw a total of RM40.1 billion, as of 8pm on April 14.

The urgency of the situation can be seen in EPF’s act to exacerbate the disbursement of payments for the RM10,000 special withdrawal on Monday (April 18) instead of Wednesday (April 20) as originally scheduled, says Tengku Datuk Seri Zafrul Tengku Abdul Aziz.

In a Facebook post on Sunday, April 17, the Finance Minister said that he had received a lot of comments and messages on social media asking if the disbursement could be made faster.

“I have heard your voices. After discussing the matter with EPF, I am pleased to announce that the payments of the special withdrawal will be credited gradually starting from April 18 instead of April 20 as previously announced,” he said in the posting.

EPF said the applications represented 44 per cent out of the 11.95 million members who were eligible to withdraw the facility. The payments will be made in batches, with the first batch commencing earlier this week.

The Special Withdrawal facility – the fourth round of special withdrawals to help members tide over from the effects of Covid-19 — was opened from April 1. It allows members aged 55 and below to withdraw up to RM10,000 per person from their savings, and is slated to close on April 30.

Breaking down the applications received by wage groups, EPF said they represented 55 per cent of eligible B40 members (those earning less than RM1,700), 59 per cent of M40 members (RM1,701 to RM4,900), and 39 per cent of T20 members (earning above RM4,900).

A further 29 per cent of informal (self-employed or no formal employment) and inactive members also applied.

Meanwhile, in terms of race, the EPF said the bulk (63 per cent) of applicants were made up of Bumiputera Malays, followed by Chinese at 12 per cent and Indians at seven per cent. The 17 per cent balance of applicants comprised Bumiputera Sabah and Sarawak, as well as non-Malaysians.

The retirement fund said that based on feedback from applicants, the top three reasons for special withdrawal applications are reduction in income or wage (24 per cent), to assist affected spouse or family members (23 per cent), and to increase sources of income (14 per cent).

It said that 40 per cent of applicants said utilisation of proceeds would be for the purpose of supplementing daily or monthly essential expenditure, followed by settling outstanding debts (26 per cent), increasing emergency fund (eight per cent) and assisting affected family members (seven per cent).

The remaining 19 per cent of applicants responded that proceeds were to be utilised for other purposes, such as children’s education, non-essential expenditure, and investment.

 

Concerns on EPF’s performance

As the fourth instalment of withdrawals, concerns arise on the EPF’s ability to maintain its performance in the future.

Nevertheless, it has performed well in the past. On March 2 this year, the fund announced a dividend rate of 6.10 per cent for Simpanan Konvensional, with a total payout of RM50.45 billion; and 5.65 per cent for Simpanan Shariah, with total payout of RM6.27 billion, bringing total payout amount for 2021 to RM56.72 billion. EPF chairman Tan Sri Ahmad Badri Mohd Zahir said, “Alhamdulillah, the EPF had managed to keep it steady for the year 2021 and remained resilient, due in part to our healthy and globally diversified portfolio.

“The RM101 billion pandemic-related withdrawals since the year 2020 had resulted in 48 per cent of EPF members having less than RM10,000 in their accounts.

“We hope that this dividend and our continued performance will help us begin the process of rebuilding our members’ retirement savings, as economic recovery takes shape over the course of the year,” he added.

According to him, the primary concern with the withdrawals was the impact on members’ retirement adequacy. However, despite the challenge of managing liquidity in the face of these outflows, the EPF had the capability and agility to respond with minimal impact to financial market.

For 2021, the EPF had rebalanced and managed its investment portfolios by acquiring shares that were fundamentally strong at attractive prices, as well as capitalising on its overseas investments, which contributed 56 per cent to its overall returns.

As at December 31, 2021, the EPF recorded an increase of six per cent in total gross investment income to RM67.06 billion from RM63.45 billion in 2020, driven by the progressive recovery of the equity markets and most asset classes amid the global rebound.

 

Source: KWSP

Taking a close look at EPF’s investment portfolio in 2021

FOR 2021, the EPF recorded its first ever negative net contribution (contributions after withdrawals) in 20 years of RM58.2 billion, but remained steadfast and prudent in its long term investment strategies, while adapting to the challenges to ensure long term sustainable returns.

The EPF said it recorded a gross investment income of RM67.06 billion, with RM6.91 billion allocated to Simpanan Shariah.

“The performance was attributed to the EPF’s diversification approach as guided by its Strategic Asset Allocation (SAA), which has kept the Fund resilient to financial shocks and remain stable in unprecedented situations,” it said in a statement detailling its performance.

“By asset class, fixed income instruments made up 45 per cent of investments, while equities comprised 44 per cent. Real estate and infrastructure as well as money market instruments made up six and five per cent of EPF assets, respectively.

“The continued market recovery in 2021, particularly in the developed markets, contributed to the EPF’s listed equity portfolios, providing opportunities for it to realise profits.”

EPF said that equities, particularly foreign listed equities, which recorded a return on investment (ROI) of 10.44 per cent, continued to be the driver of returns. Total income contributed by the Equity asset class was RM38.93 billion, or 58 per cent of the EPF’s total gross income.

“The private equity portfolio also demonstrated strong performance, recording an ROI of 19.01 per cent. To ensure long-term healthiness, the EPF took prudent measures to write down RM1.15 billion of its listed equity portfolio in 2021, which was lower than the RM7.71 billion write down recorded in 2020, in line with the broad recovery in the equity markets.

“With almost half of the EPF’s total asset allocation in fixed income instruments, comprising Malaysian government securities and equivalent, as well as loans and bonds, the retirement fund was able to maintain steady returns,” EPF said, adding that income from the portfolio contributed RM19.50 billion or 29 per cent of the EPF’s total gross income.

The real estate and infrastructure portfolio’s income of RM7.69 billion continued to play a role as a hedge against inflation, recording an ROI of 6.53 per cent, a spread of 1.84 per cent above the ROI for fixed income instruments of 4.69 per cent, whereas income from Money Market instruments came in at RM0.94 billion.

The EPF’s overseas assets were critical contributors to its overall performance, where different asset classes, markets, and currencies provided income stability and added value to the retirement fund’s overall return. As at December 2021, about 37 per cent of EPF’s investment assets were outside of Malaysia across all asset classes.

Overall investment assets grew 0.8 per cent to RM1.01 trillion from RM1 trillion in 2020. Membership base as at December 2021 grew by two per cent to 15.2 million, while employers registered with the EPF stood at 553,000.

According to Chua Zhu Lian, group managing director of Vision Group, relaxing the intended discipline and social lock-ups could lead to consequential effects on the long term fundamentals of the country.

“The key concept of EPF has always been to provide a post-retirement safety net for the masses, as a social protection to ensure contributors have sufficient funds and income post-retirement,” he commented to BizHive.

“Relaxing the intended discipline and social lock-ups could lead to consequential effects on the long term fundamentals of the country, unless the country can mitigate the effects by raising standards of livings through stronger economic growth and prosperity or administer similar arrangements via the private sector such as Private Retirement Schemes (PRS) and insurance coverage to help re-build this essential safety net for the citizens.

“Without comprehensive plans in place, the country may face exponential increase in financial burden in the future on social spending to provide adequate coverage and assurance to the citizens in terms of post-retirement care; it may also put the country on pressure in the areas of sustainability, in aspects of social, which could also lead to higher cost of financing in the future given the current trends in sustainability/ESG.”

For decades, Chua noted that EPF has been one of the most effective mandatory saving mechanisms to ensure minimum levels of savings by the masses, at the same time, putting the management of these savings in the hands of professionals to continuously grow the wealth in a sustainable manner for the people.

He commended the provident fund structure for being “one of the most effective transition strategy until a country reaches to a high income nation and higher sophistication of financial planning.”

“Given the significant size of the asset under management, EPF has became a preferred investor for many global deals which has put Malaysia on the world’s radar and help EPF to continuously secure privileged access to profitable global investments,” he said.

“In addition, EPF has also been a strong contributor in nation building with funds to support budding entrepreneurs that has contributed meaningfully in taxes, job creation and upskilling of people.:

Should EPF withdrawals outstrips contributions and the relevance of EPF shrinks with its’ size, Chua forewarned of risks that the positive multiplier effects above may diminish and affect the long term fundamentals of the country.

“The country may also lose a strong and proactive leader in pushing forward looking initiatives such as ESG should EPF loses the financial muscle to influence businesses through investments,” he added.

 

As the country rebuilds the economy and more people have returned to work, the EPF believes that this should be the last facility allowed under the special withdrawal initiative. — Bernama photo

 

Worry over retirement risks

IN giving the public more access to withdraw their retirement monies earlier than intended, therein lies a concern as to whether

The EPF issued a stern reminder that the country could be staring at a retirement crisis just hours after Prime Minister Datuk Seri Ismail Sabri Yaakob greenlit another withdrawal facility to help people cope with the Covid-19 fallout.

The pension fund said this should be “the last” special withdrawal initiative as it reiterated its concerns around members’ retirement adequacy.

“As the country rebuilds the economy and more people have returned to work, the EPF believes that this should be the last facility allowed under the special withdrawal initiative,” the fund said in a statement.

“The EPF would like to reiterate its concerns around members’ retirement adequacy and hopes this will be a precursor towards the rebuilding of retirement savings and reforming of the nation’s social security system.”

Ismail Sabri announced earlier this afternoon that the government has agreed to allow a last withdrawal of up to RM10,000, saying the decision was based on growing public demand that the programme be extended.

This will be the fourth withdrawal after i-Lestari and i-Sinar in 2020 and i-Citra in July 2021, to meet the urgent cash flow needs of members during the periods of the movement control orders (MCO) and the subsequent economic slowdown.

As of end 2021, a total of RM101 billion had been withdrawn under the first three facilities.

EPF said application for the special withdrawal facility will be opened to members below age 55 starting April 1, 2022 and ending on April 30, 2022, while payment will commence before April 20, 2022.

Members are allowed to withdraw a maximum amount of RM10,000 and a minimum amount of RM50, and must fully utilise their savings balance in Account 2 first before accessing their Account 1.

 

Longer wait for next EPF withdrawal under Account 2

As a key point of warning, EPF members who have had their Account 2 wiped out following the special withdrawals will have to wait much longer before they are eligible to take out their savings to use for housing, medical expenses or studies.

This involves those who had no choice but to take their money out of Account 1 to top up what was left in the other account to make it RM10,000, or taking the whole amount from the first account.

To note, EPF’s Account 1 is designated for retirement savings, while monies in Account 2 can be used for medical expenses, tertiary studies for self and children, and the purchase of homes.

Currently, 70 per cent of savers’ monthly contributions are placed in Account 1 with the remaining 30 per cent placed in Account 2.

According to EPF, there is a “20 per cent additional contribution” to the amount taken that will be placed in Account 1 from their monthly contributions.

However, for those who had taken the special withdrawal of RM10,000, they will have all their monthly contributions go to Account 1.

“This will stop only after the RM10,000 plus the 20 per cent, which will be RM2,000, goes back into Account 1. Only then will it be split into 70 and 30 per cent again,” the fund said in its frequently asked questions segment page on the special withdrawal.

Since this involves all special withdrawals, those who had also withdrawn in the past using this facility will have to wait much longer for this as their total withdrawals would have been much higher.

EPF said the rationale behind this move is to ensure they have enough after they retire by replenishing their Account 1.

“The 20 per cent is based on the estimated loss of dividend of an average of five per cent per annum, with the replenishment expected to take about four years,” it said. “This is to ensure their retirement savings are refortified and they enjoy the dividend pay-outs like the rest.”

 

Retirement withdrawals: A move of last resorts

THE Institute for Democracy and Economic Affairs (IDEAS) warns that the government’s recent decision to allow savers at the Employees Provident Fund (EPF) to make another withdrawal of up to RM10,000 from their EPF savings risks leaving even more EPF savers with insufficient savings once they reach retirement.

As this will become an increasingly pertinent issue as Malaysia transitions to an aged society over the next two decades, IDEAS believes that EPF withdrawals should be a policy of last resort, used in emergency situations only. Instead, existing funds such as the National Disaster Relief Fund (TBBN), the National Disaster Relief Trust Fund (KWABBN) and zakat (religious alms) should be utilised instead.

IDEAS notes that up to now, the government had allowed EPF savers to withdraw up to RM71,000 from their retirement funds through three previous EPF withdrawal programmes, which amounted to RM101 billion.

As highlighted by EPF, this led to a total of 6.1 million members now having less than RM10,000 in savings in their retirement funds. EPF further emphasised that as of October 2021, 3.6 million contributors have less than RM1,000 in their accounts. From this group, 2 million Bumiputera members have less than RM1,000 as savings.

Tricia Yeoh

“While the government is correct in wanting to provide immediate relief to low-income Malaysians who are struggling in the aftermath of the Covid-19 pandemic as well as the recent flooding,” said IDEAS chief executive officer Tricia Yeoh in a statement.

“We have to remember that the EPF was specifically set up to provide a social safety net for pensioners in Malaysia.

“As such, the withdrawal and its timeline need to mirror that objective – for retirement purposes and for those purposes alone. IDEAS believes that the decision to continue allowing unending EPF withdrawals to be made is not grounded on sound economic logic but is a knee-jerk reaction, responding to a political agenda.

“Such short-term thinking will have a detrimental impact over the long run and we urge political leaders to consider the negative impacts such a policy entails for our pensioners and future generations.”

“Bear in mind, in order to allow people to withdraw their savings, EPF would be forced to sell more of its overseas assets at a time of volatile market conditions due to the ongoing war in Ukraine, inflationary pressures on global energy and commodity prices, as well as expectations of central banks raising interest rates sometime this year.”

“Also, should the EPF be forced to adjust local equity holdings, this could impact Bursa Malaysia badly, further hitting EPF accounts.”

“According to data by the World Bank, Malaysia had already become an ageing society in 2020, with approximately seven per cent of the population aged 65 and above,” stated IDEAS Economics and Business Unit director Dr Juita Mohamad.

Dr Juita Mohamad

“Based on latest projections, Malaysia will become an “aged society” by 2044 with over 14 per cent of its population above the age of 65. It is crucial that our increasingly large pensioner population have an adequate cushion when they hit retirement.”

“With the economy recovering and the job market strengthening with the absence of lockdowns, IDEAS believes that EPF withdrawals should be used as the last resort in emergency situations only.”

IDEAS noted that there are various existing funds at both the federal and state levels that can be pooled and tapped into to help vulnerable households.

These funds include the National Disaster Relief Fund (TBBN), which is funded by donations from various parties and is set up to manage said disaster relief donations, as well as the National Disaster Relief Trust Fund (KWABBN), which was set up in 2016 under the Financial Procedure Act 1957 with the aims of giving aid to disaster victims, paying for disaster management activities or costs, and providing aid to state governments, departments or agencies.

At the state level, additionally, zakat funds need to also be further distributed as a powerful poverty alleviation and wealth redistribution tool. Such a tool can be deployed more effectively at the micro-level to targeted vulnerable households in a post-pandemic setting to top up existing federal funds.

“In the long term, the Malaysian government should focus on creating more formalised social safety nets which would cover both formal and informal workers,” Juita said.

 

Navigating challenges for retirement wellbeing

With an average three-year real dividend after adjusting for inflation of 4.91 per cent for Simpanan Konvensional, and 4.51 per cent for Simpanan Shariah, the EPF had surpassed its strategic target of declaring an average real dividend of at least two per cent on a rolling three-year basis.

The dividend payout for each savings was derived from total gross realised income for the year after deducting the net impairment on financial assets, cost write down on listed equities, unrealised losses due to foreign exchange rate and derivative prices, investment expenses, operating expenses, statutory charges as well as dividend on withdrawals.

The EPF believes that the reopening of economies and businesses, as well as various initiatives under the National Economic Recovery Plan, would provide fertile ground for the EPF to increase its investment efficiencies and leverage on the opportunities that a recovery brings.

“To that end, the EPF will be increasing investment in the various domestic asset classes in 2022,” it enthused. “As a major investor in Malaysia’s financial markets, this would help also catalyse economic activity and assist in the ongoing recovery of the economy.

“The EPF’s internal data is already showing that the labour market is returning to health, with contribution data, member registrations, and active employers all returning to pre-pandemic levels in the fourth quarter of 2021.

“With international borders set to reopen and vaccination rates among the best in the world, Malaysia is poised for a rebound in 2022.”

Following the special withdrawal facilities due to the Covid-19 pandemic, the EPF is now focused on assisting members to rebuild their savings for their retirement future.

The withdrawal facilities were exceptional in nature, and were introduced considering the circumstances at the time where the pandemic severely impacted the local economy.

“These withdrawals, namely i-Lestari, i-Sinar, and i-Citra, resulted in a total of RM101 billion being disbursed to over 7.4 million members, which is close to half of all EPF members.

“While they provided some financial relief to members during the pandemic and various MCOs, the withdrawals have inevitably led to 6.1 million members now having less than RM10,000 in their EPF accounts, of which 3.6 million have less than RM1,000, leaving them vulnerable and unprotected for their retirement.

“The drop in savings is particularly worrying for Bumiputera members, as they made up 78 per cent or more than three quarters of the withdrawal applicants.

“As a result, 4.4 million or 54 per cent Bumiputera members now have less than RM10,000, and 2.0 million or 25 per cent have less than RM1,000.

“In addition, the distribution of savings has become increasingly skewed. The bottom 40 per cent of EPF members (about 5.0 million members) saw their savings drop by 38 per cent to just RM8 billion, translating into a median savings balance of RM1,005.

“The middle 40 per cent also suffered a decline of 18 per cent to RM155 billion, or a median balance of RM24,995. Only the top 20 per cent of members aged below 55 saw an increase in savings, but this translates to a median of RM152,043, or equivalent to just RM633 per month for 20 years.The three exceptional withdrawals have left 73 per cent or nearly three quarters of members in a serious state of having inadequate funds to retire above the poverty line.

“The EPF estimates that members will need to work between an extra 4-6 years to rebuild the savings that have been utilised during the pandemic, which has also led to a significant drop in the percentage of members meeting the Basic Savings threshold (RM240,000 at age 55) from 36 per cent in 2020 to an estimated 27 per cent by the end of this year.”

Against this need to safeguard members’ future and rebuild their retirement funds, future exceptional withdrawals will need to be very carefully considered. With the measures put in place to support the recovery of the economy and spur employment, the fund hopes that this will go some way towards addressing the needs of the Rakyat.

The national fund commented that the National Recovery Plan supported by the highly successful vaccine rollout is seeing gradual but consistent improvements to the pandemic situation, paving the way for economic recovery.

These include initiatives bia the recently tabled Budget 2022 which includes an allocation of RM8.2 billion for Bantuan Keluarga Malaysia (BKM) and RM4.8 billion for Inisiatif Jamin Kerja Keluarga Malaysia (JaminKerja), as well as a number of measures to assist the Rakyat, exemplifying the Government’s strong stance in strengthening the social protection agenda for Malaysians.

This can also be seen particularly in the continuation of i-Saraan and Kasih Suri Keluarga Malaysia incentives. These efforts go some way towards addressing the shortcomings of the country’s social protection system for the vulnerable members of society, to ensure that they have access to at least a minimum standard of living, even during unprecedented times.

The social protection agenda is being overseen by the Malaysian Social Protection Council (MySPC), chaired by the Prime Minister, and is currently looking at fundamental reforms to the nation’s social protection system.

“The EPF is in full support of these moves, and will work closely together with the Government to ensure a secure and protected future for our members and the rakyat.”