THE Employees Provident Fund (EPF) is providing members with the option and flexibility to diversify their retirement portfolio via the members investment scheme to help them meet their financial goals.
According to Badrul Hisham Dahalan, head of EPF’s quantitative and performance analysis department, members who meet the “basic savings” requirement may transfer part of their savings from Account I into fund management institutions of their choice to optimise investments for potentially higher returns on their EPF savings.
Currently, under the members investment scheme – which was first introduced in 1996 – members may transfer, every three months, not more than 20% of the amount in excess of the required basic savings in Account I into investments through appointed fund management institutions comprising unit trust management companies (including Amanah Saham Nasional Bhd), asset management companies and Lembaga Tabung Haji.
Basic savings is a pre-determined amount set according to age that ensures members have at least RM196,800 upon reaching age 55; this amount was benchmarked against the minimum pension of RM820 per month for 20 years, from 55 to 75 years old.
However, from Jan 1, 2017, the EPF is revising upwards the amount for basic savings to RM228,000, taking into account the revised minimum pension for public sector employees from RM820 to RM950 a month.
At the same time, also effective Jan 1, the amount members are allowed to transfer out every three months from their Account I for investment has been increased to 30% in excess of their required basic savings.
Under the members investment scheme, members may choose from a variety of funds based on the risk profile and return expectations that best meet their investment needs, says Badrul Hisham.
“As an example, for unit trust funds, there are equity funds, bond funds, balanced funds, money market funds, and property trust funds. Members can also choose between conventional and syariah-compliant offerings of the funds. Whereas for private mandate, members may opt to have their investments managed by asset management companies,” he explains.
According to Badrul Hisham, the EPF has also established a fund information portal, launched in March last year, where members may conduct their own research on funds offered and the institutions managing those funds before deciding to invest. The portal can be accessed freely if you have registered with EPF’s i-Account.
“The portal provides pertinent information on unit trust funds and fund management institutions appointed under the scheme. This includes funds’ statuses and performance, comparisons between funds in the same category, boards of directors, investment committees, dividends paid, and more,” he says.
This way, says Badrul Hisham, members will have more information to make their investment decisions.
Putting members’ interest first
However, Badrul Hisham stresses that the organisation is not promoting any unit trust funds or fund management institutions in particular, as the EPF strives to ensure that its members are able to invest under the auspices of a well-regulated scheme with a sound framework in place to safeguard members’ interests.
“The EPF safeguards the integrity of the scheme and ensures that there will be no leakages in members’ retirement savings by putting in place a framework and guidelines to govern the fund management institutions while continuously elevating fund quality in protecting the interest of MIS-participating members,” he says.
Together with the Federation of Investment Managers Malaysia, the EPF carries out a yearly evaluation of funds offered under the members investment scheme. The EPF also appoints an independent auditor to conduct a yearly audit on fund management institutions to examine their compliance with EPF guidelines and ensure that they are operating in the best interests of the EPF members who are investing their funds.
“In the past, fund management institutions found to be in breach of EPF guidelines were faced with consequential actions, including warnings, fines, suspensions, and, in the worst case scenario, termination of status as an appointed fund manager under the scheme,” explains Badrul Hisham.
To prevent leakages, he adds, any income distribution from the investments is either reinvested by the fund management institutions, or, upon redemption, transferred back to the member’s EPF account. If an institution is dropped from the scheme, it must liquidate the member’s investment and return the amount to the individual’s EPF account.
While the EPF strives to provide regulated investment options through the members investment scheme, Badrul Hisham urges members to enhance their financial literacy and investment knowledge and obtain adequate information – such as all the costs and investment risks involved – before making any investment decisions.
“Members must understand that there is no guarantee that all investments will always be profitable because the performance of the funds today is not an assurance of their future performance,” he says, urging members to exercise due care and to seek advice from qualified advisers or financial planners before deciding to invest.
According to Badrul Hisham, the fund management institutions must also ensure that their consultants, agents and sales staff provide professional advice, disclosure documents, and fund prospectuses when marketing their products. Stressing the importance of the prospectus, he says it contains valuable details about investment goals, strategies to achieve goals, past performance, risks, and fees and expenses to be paid by the investor.
The EPF also provides a complimentary retirement advisory service (RAS) at seven branches nationwide, providing members with guidelines and options to help members manage and grow their retirement savings.
However, Badrul Hisham stresses, “The members investment scheme is voluntary. Our RAS officers can guide you but we cannot tell you what to invest in.”
In the event that members are dissatisfied or have any complaints, he says, there are several ways of seeking recourse: Complaints about the misconduct of agents can be directed to the Federation of Investment Managers Malaysia, and any disputes can be directed to the Securities Industry Dispute Resolution Centre.
Enhancement of the MIS
According to Badrul Hisham, new initiatives are constantly introduced for the betterment of the members investment scheme that take into account developments in the fund management industry as well as changing members’ expectations over time.
For instance, effective Aug 1, the EPF removed its 30% foreign fund exposure cap on investments undertaken by funds under the members investment scheme. The move, Badrul Hisham says, is to allow members to diversify their investments beyond the limited domestic market and make more fund options available.
Prior to this, the EPF only allowed and approved unit trust funds with no more than 30% of foreign investment exposure to be offered under the members investment scheme.
Badrul Hisham says the EPF has also allowed for funds to trade in warrants; before, funds were only allowed to trade in warrants issued by companies listed on Bursa Malaysia arising from corporate action.
“Apart from being a regulated instrument, the cost of trading in warrants is low; and they may be converted to underlying security at a fixed time and cost, hence offering better potential returns,” he elaborates, reasoning that this “provides the fund managers with the option to execute a better investment strategy for the funds’ best returns.”
In addition, the EPF is also raising the score of funds’ Simple Average Rating for Consistent Returns, or the Simple Average Benchmark Rating, from 2.00 to 2.33 and above, effective next year.
Implemented in 2010, the score is calculated based on a fund’s aggregate performance over a rolling three-year period, while taking into account the performance of its peers and the industry. With the full rating being 5.00, funds which score below the minimal rating score will be suspended from the list of approved funds.
For members who opt for the syariah savings account, or simpanan shariah, which is coming into force on Jan 1, Badrul Hisham says there will be mechanisms in place to ensure that those members will only be able to subscribe to syariah-compliant funds under the members investment scheme.
According to Badrul Hisham, there are 334 funds approved to date, but for the offering period 2016/2017, only 277 funds have qualified to be offered under the members investment scheme. As of December 2015, a total of 934,246 members’ accounts were enrolled under the scheme, with the total approved funds having a market value of RM40.46bil.
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