Look beyond EPF dividends when preparing for retirement

KUALA LUMPUR: Recently, the Employees Provident Fund (EPF) announced a dividend pay-out of 5.7% for 2016 – much lower than the 6.4% dividend for 2015 and 6.75% in 2014, leaving many Malaysians disappointed.  

In fact, this is the first time EPF’s dividend has fallen below the 6% mark since 2010 when a 5.8% dividend was declared. 

“In light of the rising cost of living, longer life expectancy and a higher inflation rate, iMoney believes that Malaysians should be taking a more active role in ensuring they have sufficient funds for their retirement. 

"It is not enough to just rely on EPF’s yearly dividend pay-outs,” said Lee Ching Wei, CEO and co-founder of iMoney. 

Is the new quantum enough to sustain you through retirement?

Based on a recent EPF study, 50% of retirees exhaust their funds within five years of retirement.   

The harsh reality is that Malaysians spend 31.2% of their disposable income on food and food away from home, 23.9% on petrol, housing utilities and 14.6% on transport. 
 
Enter, EPF-approved unit trusts

One way for Malaysians to boost their chances of retirement survival is to grow their EPF contributions at a quicker rate. EPF contributors can invest a portion of their Account 1 savings into approved unit trust funds. 

The scheme provides members with an option to enhance their retirement savings by placing a portion of their EPF savings in Account 1 to be invested in unit trusts or through private mandate managed by appointed Fund Managers Institutions (FMI) under the EPF Members Investment Scheme (EPF-MIS).

However, contributors will need to have higher savings in their EPF accounts to participate in the EPF-MIS.

These funds need to achieve a three-year simple average consistent return rating of 2.00, sourced from mutual and hedge fund analytics provider Lipper, which has a scale of 1 to 5.

To invest or not to invest – that is the question

“While there are obvious risks and fees that come with investing in unit trusts, contributors may risk not building enough of a nest egg to fund your golden years. Do you want to rely on EPF dividends or make a portion of the savings “work harder” through unit trust funds?,” added Lee. 

The rule of thumb for investing is to start as early as possible, and this also applies to EPF-approved unit trust funds. Unit trust investments are known for their long-term value; usually up to five years or longer.

iMoney encourages EPF members to familiarise themselves with the track record of appointed fund managers before making their decisions and keep track of their EPF contributions and growth. 

Obtaining the latest statement can be done online through i-Akaun at myEPF website. Alternatively, members can obtain their statement via EPF kiosks or visit any EPF branches.  

How EPF-approved unit trusts works:

• Effective January 1, 2017, members are allowed to invest up to 30% of excess savings, compared to the previous 20% limit.

• Use the basic savings guide to determine the amount permitted to be transferred for investment under the scheme.

• Members must also be below 55 years old at date of application.

• The minimum amount of investment under the unit trust mandate is RM1,000 while for the private mandate, it may require a larger sum of money.

• Once members fulfil eligibility, they can choose their desired funds. Of the 336 funds listed under the scheme, 220 funds are qualified to be offered for period 2015/2016.

• Members are not allowed to withdraw any amount from the money invested through the FMI.

• EPF will release its control on the invested amount by the FMI when a member reaches age 55 or has made full withdrawal under leaving the country, incapacitation, pensionable employees and death withdrawals.

• Claims or resale of the invested units will be managed by the member or next-of-kin directly with the FMI.