KWSP Dividend

Interesting.... You may get more information from KWSP's official website.

Example of some FAQs related to Dividends:

1. How did the EPF manage to offer a dividend of 8% in the 80s?

In the 80s, EPF’s investments were concentrated on interest-based investments, such as Malaysian Government Securities (MGS). It should be noted that the interest rate regime during those years were high, with the average base lending rates (BLR) hitting a peak of 12.25 per cent in 1984, compared to the significantly lower current BLR. For instance, Maybank’s 12-month fixed deposit rate as of March 2009 is only 2.50 per cent.

Consequently, investments in MGS during that era were able to produce very high returns for the EPF, making it possible for the Fund to declare its highest dividend rates. However, the high interest rate regime also meant that cost of housing loans and hire purchase were considerably higher at that time than they are now.

2.	Why are other savings funds in Malaysia able to offer better dividends than the EPF?

The simplest explanation is that other funds have different investments objectives. The EPF maintains an asset allocation structure that does not expose our investments to high risk in line with our role as a retirement fund.

Other funds are also much smaller in size compared to the EPF which stands at RM340 billion today. Smaller funds are easier to manage and more maneuverable in terms of reshuffling asset allocation and selling off shares.

Therefore, it is consistent with the "Interest And You" posted earlier this month.

If you hope the EPF dividend will be higher... then you are also expecting to pay MORE interest for house loan, car loan or business loan.

KWSP 2009 Statistic & Annual Report

The EPF's Annual Report 2009 was tabled in Parliament on 13.7.2010 and it is good to know that the information is available for public to access.

• The statistic 2009 (12 pages) is available here.
• The full financial statement (72 pages) is available here.
• The Nanyang newspaper cutting is available here.

I did some analysis myself, interesting facts:

1. Only 1% (of total member of 5.7 million) has saving above RM400,000
2. Of this 1% (56,085 members) , 77.7% was Male.
3. 88.3% (5,111,772) members have RM100,000 and lesser in their saving.
4. Withdrawal application increased by 237% since year 2005. A lots more people drawing money. (1.95 million in Year 2009 vs. 0.58 million in Year 2005)
5. Withdrawal for housing related increased by 1,576% since Year 2005. Wow!!! Mainly from the Housing Loan Monthly Installment Scheme.

Why?? The following may be part of the answer, if not all:

1. Saving (or rather earnings) is not enough, if salary only RM2,000 per month, one needs almost 15 years plus to achieve RM100,000 saving, assuming he/she didn't apply for any withdrawal - That is why we need to aim for high income nation with high standard of living.

2. Too many withdrawal schemes. Over 1.9 million applications received for various withdrawal scheme during year 2009, 73.1% is housing related and 16.8% is age-related.

3. People don't trust EPF investment and its return, so they are not willing to keep their saving with the EPF for golden year, and try to withdraw any much as possible for whatsoever reason and manage by themselves.

It may not really that people don't know how to manage finance and thus having low deposit with EPF, right? Anyhow, I tend to believe most people have not save enough for their golden years (at least the those born in the '70 and '80).

If YOU can and able to save more for golden years, why not doing it now, why wait?

EPF and My Retirement Planning

In March 2010, EPF declares 5.65% dividend for year 2009. Is it good enough? Is it too low? It depends on your perception and ..... many many factors.

Many Malaysian depends "solely" on EPF for retirement. It is one of the best "pension" scheme ever created. However things have change over the decades and the change is getting faster than ordinary Malaysian can comprehend.

From year 1983 to year 1994 - the golden years for EPF Contributors. Average return above 8.0%
From 1995 to 2000 - not so bad, still have on average above 6.5%
From 2000 to 2009 - Alert!! Alert!! We have only on average 5.06%

What has happened?

According to many articles and publications,
1. EPF size is too "huge" now compared to years ago. So, it is not easy to get high return for all member
2. Losing some money to rescue somebody. [beyond the topic]

By May 2010, EPF has a total fund size of RM370b... some estimate it will grow to RM500b by 2013. How "huge" is RM370b?

RM1 b = RM1,000,000 x 1,000

RM370b = RM1,000,000 x 370,000

The Dilemma of EPF now is how to get better return for its members yet not risking the principal. Lets look at the portfolio of EPF fund's allocation.

The following extracted from http://tonypua.blogspot.com/

As it is EPF equities investments has increased from RM46.9 billion in 2005 to RM93.9 billion in 2009. This represents a significant increase in allocation to equity from 18.0% to 26.5%. At the same time, EPF's fund allocation to the safest of instruments, the Malaysian Government Securities (MGS) has declined significantly from 39.2% to 27.5% over the same period.

What is also notable, is the fact that EPF's “loans” portfolio has increased significantly over this period as well, increasing from RM94.36 billion (36.3%) in 2005 to RM145.75 billion (41.2%) in 2009. In part, this is related to a series of loans mandated by the Government such as a RM5 billion loan by EPF to ValueCap to invest in the stock market, as well as up to RM10 billion to Khazanah Nasional for the 2009 economic stimulus plan.

Above "facts" tell us that more money has been injected into our BURSA. Anyone who does active investment knows that EPF can't easily get out from Bursa without inserting a selling pressure. In years to come, our retirement fund (EPF) will become too "market related" and unnecessary exposure to risk, 1.2 million members' retirement money.