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EPF members exhaust savings

ABOUT 30% or 1.6 million members of Employees Provident Fund (EPF) may have exhausted nearly all of their retirement savings in Account 1, leaving a minimum required balance of RM100 in the aftermath of various Covid-19 related programmes.

Outgoing EPF CEO Tunku Alizakri Raja Muhammad Alias said the other issue worth noting is that close to 60% or three million members have or will use up all savings in Account 2.

“Don’t forget that Account 2 is to be utilised for other forms of withdrawals like housing, medical and education. Without Account 2, our members will not be able to use some of their savings to invest in a roof over their head, upgrading skills and health.

“We are very concerned about these numbers, but we will be doing a lot more activities to educate our members and come up with products and services to ensure that members will see EPF as the place to put their retirement savings,” Tunku Alizakri said at the EPF 2020 performance briefing last Saturday.

He said adequacy levels are expected to deteriorate with the number of members meeting basic savings dropping from 22% (3.3 million) to less than 20% (three million) with Covid-19 programmes.

The number of active members meeting basic savings also declined from 36% (2.7 million) to 28% (2.1 million) post-Covid-19.

On the liquidity front, Tunku Alizakri said the year 2020 saw contribution collection increase by 3.3% to RM78.4 billion compared to RM75.9 billion in 2019.

However, withdrawals also increased by 30.1% to RM58.3 billion in 2020 against RM44.8 billion in the previous year.

Net contributions for 2020 down by 35.4% to RM20.1 billion from RM31.1 billion recorded in 2019.

During the year, the EPF introduced several withdrawals namely the i-Sinar and i-Lestari facilities, through Account 1 and Account 2 respectively.

EPF also declared a dividend of 5.2% for Simpanan Konvensional for 2020, lower than 5.45% declared for 2019 and the lowest in more than a decade.

The 5.2% dividend amounted to a total payout of RM42.88 billion for Simpanan Konvensional compared to RM41.68 billion for the previous year.

It was also higher than the Permodalan Nasional Bhd’s distribution payout of 4.25 sen per unit for unit trust fund Amanah Saham Bumiputera, though the fund gave an “Ehsan” payment of 0.75 sen for the first 30,000 units.

EPF, one of the world’s oldest and largest retirement funds, declared the lowest return for Simpanan Konvensional in 2008 at 4.5% during the global financial crisis.

It also announced a dividend rate of 4.9% for Simpanan Shariah for 2020 with a total payout of RM4.76 billion compared to a 5% dividend rate that amounted to RM4.14 billion for 2020.

Cumulatively, the total payout for 2020 will amount to RM47.64 billion, higher than RM45.82 billion payouts for the previous year.

EPF’s overall investment assets grew 7.9% to RM998 billion, with the market value hitting RM1.02 trillion at the end of last year.

The fund’s membership base grew by 2% to 14.89 million, while employers registered with EPF stood at 534,398.

It will takes RM8.25 billion to pay out every 1% dividend for Simpanan Konvensional and RM972 million for every 1% dividend for Simpanan Shariah in 2020, and it has grown over the years.

The fund recorded its highest ever gross investment income of RM60.98 billion, with RM6.15 billion allocated to Simpanan Shariah, mainly attributed to a prudent approach guided by the overall strategic asset allocation that kept it resilient despite the unanticipated crisis.

By asset class, fixed income instruments made up 46% of investments, equities (42%), real estate and infrastructure (5%) and money market (7%).

As at December 2020, overall, the EPF had 33% of its investment assets outside of Malaysia across all asset classes.

Equities, particularly foreign equities, continued to be the driver of returns with a total income of RM28.71 billion.

The income from the money market portfolio came in at RM1.19 billion, while fixed income instruments contributed RM25.42 billion, or 42% of the fund’s total gross income.

The real estate and infrastructure portfolio recorded an income of RM5.66 billion, having dealt with its own set of challenges with lockdown measures and work from home affecting certain segments of the real estate sector.

“The vaccine rollout in 2021 will have important bearings on the outlook for the year, as we are also cognisant of new strains of Covid-19 that are easily transmitted.

“However, we believe that the situation is being well-managed, with governments everywhere ensuring that the vaccines get to people as efficiently as possible, while in Malaysia, the first batch of vaccine has arrived and will soon be administered to the population,” EPF chairman Tan Sri Ahmad Badri Mohd Zahir said in a statement.

He said EPF will remain focused on its mandate to help members have enough savings for a sustainable retirement, adding that the fund is also embarking on a new withdrawal scheme to allow members to purchase insurance or takaful products that were announced in Budget 2021, slated for an end of year rollout.

Source: The Malaysian Reserve

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