Admirable for EPF to offer good dividend despite economic volatility

IT was laudable that the Employees Provident Fund (EPF) managed to dish out a good dividend despite current spell of economic turbulence.

Dr Yeah Kim Leng

“Usually during a recession, the assets and financial markets will get hit badly but EPF still managed to perform well.

“It’s a bonus for EPF contributors … such a strong performance will inspire confidence on the pension fund,” Sunway University Economic Studies director Dr Yeah Kim Leng told FocusM, adding it will also boost EPF’s resilience in the long term.

Last week, EPF announced a dividend of 5.2% for its conventional savings, while its Shariah savings would receive a 4.9% dividend.

The dividends declared are slightly lower than in 2019 whereby the conventional savings received 5.45% and the Shariah savings received 5%.

Earlier, many analysts have voiced concerns that future EPF dividends may be affected following massive withdrawals by cash-strapped citizens due to the pandemic via the i-Lestari and i-Sinar schemes.

Cumulatively, the total dividend payout for last year amounted to RM47.64 bil.

For this year’s outlook, Yeah said it depends on various factors, including the performance of the bond and equity markets.

“A bulk of EPF’s returns came from those markets. In addition, about 30% of its investments are made overseas which means global market performance will also affect its returns this year.

“And we must take note much of its stocks’ valuation have exceeded its growth potential,” he added.

Yeah also cautioned that the stock market tends to overshoot itself and one should be mindful when economic recovery does not match expectations.

He further observed that the bond market is showing early signs of inflation, hence the outlook for the sector is a little subdued.

Balancing act

However, Yeah expressed confidence that the global economy would recover after 2H 2021 following the mass vaccination programme conducted in various nations.

“As for EPF, I believe if it is good if it can maintain dividends above the 5% threshold and contributors can continue to be confident on the retirement fund.

“Nevertheless, I would like to point out that pension fund cannot be compared to other investment funds as the latter take higher risks while the former is about capital preservation.

“As long as EPF savings can outperform inflation, contributors will have savings ahead of purchasing powers in the future,” he added.

Echoing Yeah’s sentiments, the Social Economic Research Centre (SERC) said EPF’s sound management of portfolio assets have paid off decently – amid enduring an extreme stock market volatility both domestic and overseas – at the height of the pandemic and low interest rate environment.

Lee Heng Guei

“The 5.2% rate in 2020, though moderately lower than 5.45% in 2019 was commendable during the country’s worst economic recession (-5.6%) since 2008-09 Global Financial Crisis (-1.5% in 2009).

“The dividend rate was at least more than 100% higher than a 12-month fixed deposit rates (2.25%) in a deflation environment and also more that 2% higher than the EPF’s guaranteed return of 2.5%,” its executive director Lee Heng Guei told FocusM.

However, he noted that EPF is walking on thin ice as it was juggling between allowing cash flow relieve withdrawals (i-Lestari, i-Sinar and a voluntary cut in EPF contribution rate) and sustaining decent investment return on its investment assets of RM1.02 tril of end-2020.

Lee added the reduced net inflows would mean less investible fund for the EPF to invest, adding that as of Feb 12, i-Lestari’s total withdrawal amounted to RM17.67 bil (5.15 million recipients).

“For i-Sinar, 3.18 million applications totalling RM25.3 bil was approved, of which RM13 bil has been disbursed as of Jan 20,” he remarked. – Mar 1, 2021

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