EPF may need to re-strategise to cater to i-Sinar withdrawals

Fund may be deprived of opportunity to invest in higher return asset classes such as overseas equity, real estate and infrastructure


THE Employees Provident Fund (EPF) may be forced to deviate from its investment strategy following the decision to allow i-Sinar withdrawal without conditions last week.

Experts said the fund may need to have a higher percentage of its investment in liquid investments such as money market instruments, which normally give a lower return on investment.

“The reason for doing this is to ensure enough liquidity to cater to these withdrawals. However, this will deprive the opportunity to invest in higher return asset classes such as overseas equity, real estate and infrastructure,” Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latiff told The Malaysian Reserve (TMR) yesterday.

“Nevertheless, the impact will not be severe and EPF will still be able to give a competitive rate for its dividend.”

The EPF’s overall investment assets stood at RM924.75 billion as of Dec 31, 2019, of which 37% comprised a Shariah-based portfolio and 63% conventional portfolio or Simpanan Konvensional.

Returns from the entire conventional portfolio and part of the Shariah portfolio are attributable to Simpanan Konvensional.

For 2019, the EPF reported a gross investment income of RM50.29 billion, with two-thirds coming from stable interest and dividend streams.

Of the RM50.29 billion, RM45.82 billion was attributed to Simpanan Konvensional.

Ahmed Razman believes EPF’s dividend for 2021 will not be heavily impacted by the i-Sinar programme on expectations of a recovery in the global economy in light of the Covid-19 vaccine rollout.

“On these factors, EPF will be expected to get a higher return than 2020 and the impact of the withdrawals under the i-Sinar programme will be minimised,” he explained.

Finance Minister Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz had previously said the i-Sinar withdrawal would cost the fund about RM70 billion.

Last week, he said the fund is in the process of removing all conditions for the i-Sinar facility, on the advice of Prime Minister Tan Sri Muhyiddin Yassin after receiving public’s feedback.

The fund also announced the appointment of new CEO Datuk Seri Amir Hamzah Azizan effective March 1.

Ahmed Razman said the latest initiative will be the best to aid people in need without the hassle of bureaucracy.

He cautioned against withdrawing the retirement savings, other than for addressing immediate financial woes, saying the money should not be used to buy unnecessary items, to invest in shares or to start up a business.

“The implications from these actions will probably impact their retirement savings levels.”

Centre for Market Education CEO Dr Carmelo Ferlito said while it is commendable to give individuals access to those facing financial difficulties, the same aid may not be available in the future if the savings are exhausted.

“The main challenge I see ahead is that resources withdrawn now will not be available in the future. In fact, the fund is mainly created to prepare people for the future and not to support in moments of crises.

“Therefore, individuals will have to carefully weigh the trade-offs between present and future availability of funds in order to come up with the right decision,” he told TMR.

Ferlito said the fund must have weighed on all possible scenarios before reaching such a decision.

Institute for Democracy and Economic Affairs senior economist Adli Amirullah believes the i-Sinar facility can help alleviate the household burden caused by the pandemic.

“This (move) will only provide temporary relief. The real answer to this is how much the government is willing to spend from its own pocket to help out these households that are really impacted by the crisis.

“i-Sinar is just a temporary tool and in fact, not an effective one to help the most vulnerable group during this crisis,” he told TMR.

Universiti Kuala Lumpur Business School economics lecturer Assoc Prof Dr Aimi Zulhazmi Abdul Rashid said the withdrawals will impact minor wage earners most, but not those who already have significant EPF savings.

“This will benefit the small wage earners who lost their incomes, as well as injecting cash into the domestic economy.

“Those who have significant savings of EPF may have to think carefully as the percentage of savings in banks or other agencies are currently lower than what is given by EPF,” he told TMR.

Aimi stressed that as long as the EPF is able to manage its operations, including i-Sinar applications, it would not pose a burden for the fund.

“Otherwise, the massive withdrawal activities will overwhelm EPF operations.”

Read our previous report here

EPF to remove all conditions for i-Sinar withdrawal