Is being grateful with 5.35% all that EPF savers should feel?

Editor’s Note: It will be interesting to know the stance of Chinese mainstream media with regard to what their English counterpart would deem as an ‘under-performance’ on the part of the Employees Provident Fund (EPF) to declare a much lower dividend rate of 5.35% for 2022 from 6.1% the year prior.

SO, the Employees Provident Fund (EPF) has unveiled a 5.35% of dividend rate for 2022 which is actually the second lowest in 14 years.

And understandably, this has been followed by voices of dissatisfaction among depositors. Compared with the relatively high 6.10% in 2021, the drastic 0.75 percentage point drop in 2022 easily makes the rate a point of contention.

However, others feel that the dividend rate is reasonable as we should not be too demanding during such difficult times.

Looking back at the EPF dividend rates over the past 14 years, there were eight years when the rates were above 6% with the 6.9% in 2017 being the highest and the 2020 rate of 5.20% the lowest in recent years.

Nevertheless, if we were to stretch our sight a little further and take into consideration the various objective factors, we should come to realise that the 5.35% dividend rate announced last weekend is actually not too bad after all.

Massive withdrawal

This is given that before the 2022 dividend rate was announced, some local economists had predicted a lower dividend rate – probably between 5% and 5.5% while there were talks the rate could go down to as low as 4.8% to 5.1%.

Due to the COVID-19 pandemic and the year-long war between Russia and Ukraine, the global economy has been tottering – and given the weak overall environment – it is hard for the EPF to provide a better dividend rate.

EPF’s total investment returns stood at RM66.89 bil as of end-December 2022, lower than the previous year.

Additionally, EPF has during the pandemic initiated i-Lestari, i-Sinar and i-Citra withdrawal schemes for members. Due to the massive withdrawal sum, EPF has missed the opportunity to launch aggressive investment plans during the year, hence reduced profit to make a higher dividend rate possible.

Given the various factors, it is natural that a lower dividend rate has been announced by the EPF. That said, the 5.35% rate offered is still significantly higher than fixed deposit rates of commercial banks.

Little savings left

Now let’s take a look at another even more pressing problem: many EPF contributors have insufficient funds to handle their post-retirement expenses!

As of Dec 31 last year, 1.7 million or 36% of EPF members aged between 40 and 54 had less than RM10,000 in their accounts which is a very worrying phenomenon indeed.

Given the steadily increasing goods prices, this amount of money will never be able to guarantee a reasonably comfortable retirement life, especially in urban areas. Prime Minister- cum-Finance Minister Datuk Seri Anwar Ibrahim said 71% of EPF members aged 55 and below had insufficient funds in their accounts and this could put them below poverty line after retirement.

EPF’s objective is to ensure that members can have decent retirement when they get old but it now seems that this goal is still very far. The pandemic is now tapering to an end and market vibrancy is gradually restored.

Consequently, EPF must seize this opportunity to optimise its investment portfolio to improve its returns so that it can provide more lucrative dividends to the members to boost their old age savings.

At the same time, EPF members must also understand the state of their own finances and prepare themselves for their future retirement instead of asking EPF to keep allowing them to withdraw from their accounts.

Stop excessive withdrawal

During the pandemic, the government allowed EPF members to withdraw from their accounts in a bid to help ease their financial burden.

By right, such an expedient move should be a one-off measure, but the government has since allowed the members to withdraw for a total of four times, causing some Bumiputera members to suffer up to 70% plunge in their old age savings while Indian members by 40%.

Unfortunately, there are still many who keep asking the government to allow them to withdraw further, while some politicians are more than happy to support and encourage them by pressurising the government.

Do bear in mind that EPF savings are for our old age protection. If we keep withdrawing from our accounts now, we will be left with very little to finance our future needs post-retirement.

What EPF and its members should do now is to make up for the shortfall as a result of the four withdrawals to boost our savings.

As the phenomenon of insufficient EPF savings is becoming increasingly serious nowadays, PM Anwar has made it very clear that the government will not allow EPF members to make any more withdrawals – and members of the public as well as politicians should stop pressurising the government. – March 7, 2023


The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

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