The Employees Provident Fund (EPF) was set up to take care of the welfare of 14.5 million Malaysian workers after they retire.
The EPF also takes care of the rest of the rakyat who are not EPF contributors.
How does the EPF work?
Every month, when 14.5 Malaysians of all races go to work at the end of the month the EPF will deduct 12 per cent of their salaries.
As an example, if the salary is RM1,000 a month, the EPF will deduct RM120.
The employer will also contribute to the worker’s EPF account at around 12 percent.
Together the combined deduction of the employer and the worker totals RM240 every month.
This is the law and everybody has to comply.
So at the end of every month, a worker will have RM240 in his EPF account.
This is to prepare for the workers retirement days.
After 25 years of working, the worker will have some RM72,000 in his account.
EPF is the world’s seventh largest provident fund
The EPF is now managing over RM700 billion in retirement funds belonging to 14.5 million Malaysians.
The RM700 billion has ranked the EPF as the world’s seventh largest provident fund at par with countries such as Japan, the US, Norway and Canada.
So the EPF is a reputable and a respected organisation all around the world.
The EPF has to grow the RM700 billion
The RM700 billion however, has to grow. It cannot sit there idle in the bank account.
So what does the EPF do? It will invest the money so that it can grow exponentially.
The EPF will grow the money by investing in a lot of invesment schemes.
The EPF can invest in companies which is fast growing.
So when the companies make higher profit, the EPF will also get higher dividends.
The EPF also invest in the stock market by buying shares in companies.
When the company such as Sime Darby make profit from selling palm oil.
Some of the money goes back to the EPF.
And the EPF will share the profit with its contributors by paying dividends.
The EPF also invest in Malaysian Government Securities.
What it means is that the EPF will invest in government projects such as the Mass Rapid Transit.
When the MRT makes profit, so will the EPF.
Datuk Dr John Anthony Xavier head of Universiti Kebangsaan Malaysia graduate school of business said it is EPF’s duty to enlarge the wealth of its contributors by investing in and outside Malaysia.
By investing, EPF can pay dividends
By investing and growing its money, the EPF is able to pay dividends to its contributors.
Every year, it is able to pay between 5 and 10 percent of dividends to every contributor.
So when the money in the EPF account balance is RM50,000, at 6 percent dividend, it will grow to RM53,000.
So essentially, that is what the EPF does.
EPF’s duty is to safeguard the money of the rakyat, invest and make it grow.
EPF can make bad investments too
However, the rakyat must know that not all investment is a good investment.
Sometimes the EPF make huge profit, sometimes it makes little profit.
And sometines it makes a bad investment incurring huge losses.
But the EPF will do a careful study before it invests to minimise losses.
That is why the dividends we get every year is not fixed and fluctuates every year.
Sometimes the EPF pays the rakyat a dividend of 6 percent in 2015.
Sometimes the dividend goes up to 7 percent in 2016.
Malaysia’s investment market is too small
However, the Malaysian investment market is too small.
EPF has more than RM700 billion of ringgit to invest and the Malaysian market can only take so much.
So that is why EPF needs to invest outside of Malaysia.
EPF deputy chief executive officer of investment Datuk Mohamad Nasir Ab Latif said the EPF cannot put all of its eggs in one basket.
Speaking to TV3, Berita Harian and New Straits Times on September 13, Datuk Mohamad Nasir said it has to diversify its investments to overseas markets.
US market is growing
To ensure that the EPF can grow its money, EPF needs to invest overseas.
Sometimes the overseas market is growing faster than in Malaysia.
Take the US as an example.
Bank Islam Chief Economist Dr Mohd Afzanizam Abdul Rashid said the US economy is expected to rebound next year.
This is because US President Donald Trump is cutting down taxes.
This will enable the American people to spend back home which will reinvigorate its economy.
That is why the EPF needs to take advantage of the growing US economy.
In this way, the EPF will be able to make money for the rakyat as well.
Strong US economy will benefit EPF contributors
During Datuk Seri Najib Razak’s visit to the US on September 12, the Prime Minister announced that the EPF has already invested US$7 billion in the US and will invest another US$3 billion in the next few years.
Datuk Seri Najib said the EPF is investing in the US as the superpower country is on the rebound.
The American Society of Civil Engineers said due to poor road conditions, 35,000 Americans die due to accidents caused by poor road maintenance.
It will need investments to repair the roads.
Due to the high potential growth of the US economy and its infrastructure, that is why the EPF is investing to take advantage of the situation and make profits.
EPF has to be alert to sniff the investment opportunities.
If it does not take advantage of the situation, it would be a loss for the EPF and the rakyat.
EPF cannot put all its eggs in one basket
There is an English saying, a businessman cannot put all the eggs in one basket.
The eggs must be put in many baskets so that it will not break at the same time.
In business, it is the same and a company must diversify to do two or three businesses
As an example, a property company can also have a second business such as growing oil palm.
This is because when the property company is not doing well.
The palm oil business will be able to support the property business.
Similarly, the EPF needs to spread its risk by putting its eggs in many, many baskets.
The EPF can do this by investing in Malaysia, the US and other countries such as China and Japan.
By doing this, the US economy will support the EPF when the Malaysian economy is weak.
The market is challenging
The investment market is also extremely challenging.
Sometimes the Malaysian stock market can be very robust.
Sometimes it can be very weak.
So that is why the EPF has to invest in many countries to spread the risk.
If it does not make any profit in Japan, EPF’s investments in the US can cover the loss.
So that is why EPF needs to invest overseas.
Foreign investments only account 29 percent of EPF’s assets
Datuk Mohamad Nasir said the foreign investments only account 29 percent out of EPF’s total assets of more than RM700 billion.
So the investment overseas is still manageble and will not affect the assets of the rakyat.
Sometimes the foreign investments give better returns than all the domestic investments combined.
So the rakyat should not be worried over allegations that the EPF is investing too much abroad.
Those who are not EPF members, should plan their retirement now
Some Malaysians are not even members of the EPF.
They include those who are self employed, do their own business such as pasar malam traders and freelance workers.
These workers should consider contributing to the EPF to prepare for their retirement days.
This is because studies have shown that most Malaysians will not have enough money when they retire at 60 years old.
EPF on its part must do an aggresive recruitment drive and marketing to rope in these working people who do not have an EPF account.
Private retirement scheme
The rakyat must also play their roles to help the EPF prepare for their retirement days.
This is because the EPF can only do so much to help the rakyat prepare for old age.
The EPF is unlikely to pay double digit dividends as it has limited staff to manage the sheer size of its assets.
So what the rakyat can do is to also invest in private retirement schemes or PRS.
Some of the PRS schemes include Public Mutual, Maybank, CIMB and so many others.
These schemes will help alleviate EPF’s burden.
It will also give the rakyat higher dividends as PRS are able to invest in higher growth markets.
In this way, the rakyat will be better prepared for their retirement days.
Most rakyat will benefit from the EPF
Like it or not, all Malaysians will benefit from the EPF.
Even if a person does not have an account with the EPF.
Its investment benefits will trickle down to all the rakyat.
This includes its investments in the MRT.
If the EPF own 10 percent of Sime Darby Berhad.
Its investment will help Sime Darby to sell palm oil.
The palm oil can then be sold to give Sime Darby profit.
The profit is then shared with the rakyat who are shareholders of Sime Darby.
This include Amanah Saham Bumiputera and Amanah Saham Nasional.
The rakyat who are accountholders will definitely benefit.