BE VERY CAREFUL, BIG APPETITE NAJIB & CO CAN EMPTY OUT OUR EPF IN THE WINK OF AN EYE

‘Political interference preventing EPF from serving members’ interests better’:

*MOST MALAYSIANS CANNOT AFFORD TO RETIRE*

Wednesday, 25 Oct 2017

By Jomo KS

MALAYSIA is ageing

population over 65 will be 15% of population by 2035.

EPF savings for most Malaysians barely enough for retirement.

Malaysian life expectancy rising.

72.5 years for males, 77.4 years for females.

Assuming someone lives until 75 average savings RM194,000

would bring RM25 per day, or only RM810 monthly

crude analysis but picture is clearly dire.

*Poor EPF returns*

EPF raised minimum savings target by age 55 from RM197,000 to RM228,000

only 18% members have this much

far short of target of half its members meet minimum level by 2021

Low investment returns, permitted withdrawals – housing, health, education

imply even less for retirement.

• >2/3 (68%) of EPF members aged 54 had < RM50,000 EPF savings!
• poverty line income at RM930 monthly, RM50,000 will last 4½ years.
• bottom 20% of EPF members average savings RM6,909!

70% who withdraw funds at 55 use up savings < 10 yrs after retiring.

Most EPF savings not enough to stay out of poverty after retirement.

32 million people in Malaysia

22 million or 69% of population of ‘working age’  15 – 65 yrs.

7m or 48% of 14.5m labour force have active EPF accounts.

about 1/10th works for Fed Govt

 

Others remain uncovered

informal sector, casually employed no EPF accounts

many in farming and informal sector are self-employed.

*EPF assets diversified*

• EPF world’s 7th largest sovereign pension fund in terms of total assets.
• EPF buy low yielding govt bonds, providing govt with cheap funds.
• By 2015, investment RM685bil, growing 10% annually over previous 15 years.
• EPF held considerable assets in ‘cash’ in the past.

Investments in traditional, lower risk, domestic, fixed income assets, especially Malaysian government bonds, remain significant.

EPF Govt sukuk (‘zero coupon bonds’)

By 2015 these came to 29% of HTM assets, rising from 2.7% in 2006.

EPF investing abroad since 1996.

riskier assets increasingly large

investments in equity, fixed income, real estate in US, UK, S’pore, China, Australia.

now investor, operator of businesses, well beyond portfolio investor

significant departure from past practice.

undoubtedly affect management incentives, governance of fund

opening the door to abuse of various kinds.
Direct real estate, infrastructure investments, toll highways, waste management

grown since 2011,  49% stake in PLUS costing RM9bil in 2011.

EPF dividend 5.7% for 2016

14.72m members with total pay-out of RM37.2bil.

gross investment income RM44.2bil in 2015

domestic (52%) foreign (48%) – almost equal.

capital gains > quarter of EPF income in 2015.

*Why EPF returns are low*

EPF savings do not provide most retired employees with enough to live above the poverty line after retirement, it is failing to serve its intended purpose.

over 80% of members, poor returns will prevent them from retiring in comfort.

depressed wages, low EPF returns, high household debt not serving Malaysians well

EPF professionals need to do their jobs to best serve retirees, current and future.

political interference preventing EPF from serving members’ interests better.
political intervention in investment decisions does not inspire public confidence

EPF members resigned to low returns

funds used to buy govt bonds, low returns.

With investments more diversified, returns increased but not much.

EPF members do not appreciate funds used to buy low yielding US funds.

public does not want govt to sacrifice their interests to curry favour with foreign leader

especially one who never offered any concessions to advance our national interests.

* Jomo KS is a Malaysian economist expressing his own views.

My comments :  EPF buys government bonds from other countries as well.

Other than MGS (Malaysian government securities) this would include US Treasury Bills and perhaps other sovereign issues.

US T-bills usually have even lower coupons and yields.

EPF is not the sole buyer of MGS or US T-Bills.

Sovereign debt of OECD and other stable and growing economies carries a very low interest coupon.  It is a reflection of their risk.

The interest coupon is pretty much determined by the ratings of the sovereign debts by the international rating agencies.

With the exception of the criminally fraudulent 1MDB bonds, all MGS have attracted low interest rates over many, many decades. The same goes for US T Bills – which are usually priced even lower.

Yet international bond traders still snap them up.

Not just the EPF.

However low risk begets low returns.

If you want higher returns, then bond investors can buy higher risk bonds which pay higher interest coupons (aka junk bonds,  South American bonds – at one time etc).

EPF is not the sole buyer of Malaysian government bonds. I recall doing a bond issue for the Malaysian government in the late 1990s. The Japanese banks snapped up the entire issue.  If it were NOT for instructions from our Ministry of Finance,  my bank (Maybank) would not even have had a bite at being in the more lucrative ‘arranger’ role (the fees are slightly better).

So EPF is not the sole source of cheap funds for the Malaysian government.

Neither is the Malaysian government the sole source of stable and low risk bonds for the EPF.

The amount of savings an employee puts away in the EPF depends entirely on the employee’s productivity and income earning skills.  EPF will have no influence on an employee’s capacity to save.

It is no fault of EPF if  68% of members only had savings of below RM50,000.

However even if EPF paid 10% dividend each year (which is quite impossible) then those members would only get RM5,000 dividend per year.  Or RM417 per month.  This is still below the poverty line.

As for that 20% who only have RM6,900 EPF savings, a dividend rate of 10% would give them RM690 per year or RM57.50 per month.  They have already fallen between the cracks.

In the real world today, there will be no such thing as a 10% dividend rate, unless the EPF gets involved in drugs, money laundering, gun running, prostitution, organised crime, speculating in property and the stock markets. These are the high yielding ventures. But extremely high risk.

The following statements by Jomo are worrying.

• opening the door to abuse of various kinds.
• political interference preventing EPF from serving members’ interests better.

Surely an economist of Jomo’s stature will know things that the general public does not know.

The government has now become a kleptocracy.

This kleptocracy is being assisted by a servile, stupid and also corrupted Civil Service.

There is absolutely no guarantee that the EPF is excluded from this definition.

We cannot depend on the Civil Service anymore to look out for the citizens interests or for the EPF to work for the best returns for its members.

It will be up to us the citizenry to keep a close watch on the entire Civil Service.

Since the EPF is actually funded by both the taxpayer as well as the contributors’ savings, we must scrutinise the EPF even more closely.

This article by Jomo KS is timely and should be well appreciated.

– http://syedsoutsidethebox.blogspot.my