EPF in consistent form

I AM happy that the Employees Provident Fund (EPF) is paying a dividend of 6.75%, the highest since 1999.

Given the current economic conditions and investment climate, 6.75% is beyond my expectations.

As usual, there will always be those who expect more. Please remember that a higher dividend means that EPF has to take more risks. As a retirement savings fund, the priority must be capital preservation.

EPF’s performance over the last 60 years has been one of the best among pension funds in the world, consistently paying dividends above inflation, meaning contributors enjoy real returns. It has demonstrated resilience through financial and economic crises. Maybe one or two other funds have paid higher dividends over a number of years, but these are specific-purpose funds and limited to certain segments of society.

For those with the perennial complaint that EPF’s dividend is low, just look at the Singapore equivalent which pays the average bank’s savings interest rate – about 2%.

Then there are those who insist that they are smarter than EPF and can generate better returns themselves. Amongst the misplaced and ill-informed comments are, “EPF is my money and I know what to do with it” and “I should be allowed to withdraw it anytime.”

Well, if not for EPF which makes it compulsory for you to save up to 11% of your salary each month and also compels employers to contribute up to 13%, it is unlikely that you will have any money in EPF or other forms of savings for your old age. You think you can depend on your children to take care of you? Your children can hardly take care of themselves.

EPF is a compulsory savings scheme for retirement and old age protection. Studies have shown that those who withdraw their EPF savings at age 55 finish the money within three years. Why? If the comments on blogs are to be believed, the money is used to buy diamonds, go for holidays, pay off debts, children’s education, investment and even children’s weddings. I suspect that some invest in get-rich-quick schemes (and get conned equally quickly).

As for accusations that EPF has run out of money, the fact is that EPF has too much money relative to the investment opportunities in Malaysia and it is investing part of its funds abroad, which generates a significant portion its investment income. It must manage its foreign currency risk prudently.

On the other hand, the average contributor has less than RM120,000 in their savings. This is NOT sufficient to live on until the life expectancy of 79 years. By 2060, 25% of Malaysians will be in the old age group (above 65 years). Who is going to take care of them?

The raising of the minimum retirement age to 60 years is one way to allow contributors to build up sufficient retirement savings. In line with this, I call on EPF to extend the withdrawal age from 55 to 60, otherwise it would defeat the very objective of EPF as a savings for retirement.

For those who need part of their funds earlier and plan to retire earlier than 60, the existing withdrawal scheme at 50 years can remain or be extended to 55 years. This would give flexibility to contributors and will be the right thing to do.

Everyone wants to be rich before they get old. For the majority of EPF contributors, we get old before we can get rich. Raising the retirement age to 60 years is a major step towards a more comfortable retirement.

Old age savings are a very serious matter and we cannot allow some smart alec to withdraw their EPF money to invest in a get-rich-quick scheme like last year’s scam where for a RM5,000 investment, investors were promised RM380 a month for 70 months plus 35 pendants with miraculous health benefits, to sell on to their friends and relatives for an exorbitant RM595 each. The promised total of RM47,425 equates to a 948% return over six years, much better than EPF. What happened? All the smart investors are now running to Datuk Michael Chong crying that they have been conned.

I have no sympathy for them – they are just greedy. These are the same people who now demand that that they be allowed to withdraw their EPF savings to clear their debts and bankruptcies.

I say NO! It will lead to us taking on more debts and creditors, including loan sharks who are more than happy to extend loans, knowing that debtors can use EPF money to settle these loans.

So thank you EPF for the dividend, but please continue to be prudent in your investments and do not allow more withdrawal schemes.

  • The views expressed are entirely the writer's own.

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