EPF navigates safely through pandemic-stricken 2020

THE Employees Provident Fund (EPF) delivered a sterling performance for 2020 for operational and financial results, declaring a dividend of 5.20% for Simpanan Konvensional with a payout amounting to RM42.88 billion.

For Simpanan Shariah, the EPF announced a dividend of 4.90% with a payout amounting to RM4.76 billion. The fund’s total payout for 2020 amounts to RM47.64 billion.

With an average five-year real dividend of 4.62% for Simpanan Konvensional and 4.32% for Simpanan Shariah after adjusting for inflation, the EPF has exceeded its strategic target of declaring at least 2.00% real dividend on average for a rolling five-year basis.

For 2020, the pension fund recorded its highest ever gross investment income of RM60.98 billion. Investment assets also reached RM1.02 trillion at the end of last year.

The EPF’s sterling 2020 performance was achieved despite the once-in-a-lifetime event stemming from the COVID-19 pandemic and the unique circumstances the world found itself in, with the twin health and economic crises.

AHMAD BADRI MOHD. ZAHIR

“We managed to safeguard our members’ retirement savings well, while meeting their immediate needs to deal with the current challenges. It was not easy at times as we had to walk a tightrope in ensuring that our members survive the difficult times while balancing their future needs,” said EPF Chairman Tan Sri Ahmad Badri Mohd Zahir.

“The quick spread of COVID-19 and its transmissibility made it a Black Swan event that many found challenging to manage. However, we were proactive in managing the pandemic and that helped us to ride through the challenges.

“Our focus on digitalisation enabled us to assist our members more efficiently and seamlessly while ensuring that we remain relevant to members who are more technology-savvy.

“The EPF’s speed of adaptability in its investment strategy and processes ensured that we were able to deliver optimum performance, and we further leveraged on the strength of our approximately 250-strong investment professionals who diligently managed the portfolios and took proactive measures.

“Solid teamwork and digital infrastructure ensured that we could adapt seamlessly to the new work norms,” Ahmad Badri said.

The EPF also rebalanced its investment portfolios based on thorough consideration on how the COVID-19 pandemic and global uncertainties such as the US Presidential election in November 2020, the continuous US-China trade dispute, and the impact of the Brexit negotiations had influenced capital markets worldwide.

EPF’s investment portfolio in 2020

Following lower net contributions during the year, the EPF’s ability to adapt to the current times ensured its investments were able to deliver long-term sustainable returns under the new normal.

Out of the highest gross investment income of RM60.98 billion, RM6.15 billion had been allocated to Simpanan Shariah. The strong performance was due to the prudent approach guided by the EPF’s overall Strategic Asset Allocation (SAA), which has kept the EPF resilient despite the unanticipated crisis.

By asset class, Fixed Income instruments made up 46% of investments, while Equities comprised 42%. Real Estate and Infrastructure as well as Money Market instruments made up 5% and 7%, respectively.

“The EPF is a long-term investor and remains steadfast with our diversification programme across asset classes, strategies, managers, markets, countries and currencies. The contribution from the overseas assets was also critical to our performance,” Ahmad Badri explained.

The fund’s total investment across all asset classes outside of Malaysia accounted for 33% of its overall investment. Foreign equities generated a total income of RM28.71 billion while private equity portfolios demonstrated a strong performance with a consistent income distribution.

While leading stock indices lost as much as 40% in the first quarter of last year, the EPF used the opportunity to rebalance its portfolios and acquired fundamentally strong shares at attractive prices. The recovery in the second half of the 2020 on the back of improved global and domestic markets contributed significantly to the EPF’s investment portfolios, providing for profit-taking opportunities, particularly in the fourth quarter.

The EPF took prudent measures to write down RM7.71 billion of its listed equity portfolios, to ensure that the fund’s long-term investment portfolios remain healthy.

During the year, the EPF introduced several withdrawals namely the i-Lestari and i-Sinar facilities, which required a robust liquidity plan. Hence, the Money Market portfolio grew significantly to cater for all the withdrawals. The Money Market portfolio delivered a strong income at RM1.19 billion.

With almost half of the EPF’s total asset allocation in fixed income instruments, comprising Malaysian Government Securities & Equivalent and Loans & Bonds, the fund was able to maintain stable returns and at the same time captured opportunities to realise profit as interest rates declined.

Income from the portfolio came in at RM25.42 billion, or 42% of the EPF’s total gross income. The Real Estate and Infrastructure portfolio’s delivered RM5.66 billion despite lockdown measures and work-from-home norms. The portfolio remained a key investment as a hedge against inflation with a spread of about 50 basis points above fixed income instruments.

The EPF’s overall investment assets grew 7.9% to RM998 billion while the market value reached RM1.02 trillion at the end of last year. The EPF’s membership base also grew by 2% to 14.89 million members, while employers registered with the EPF stood at 534,398.

With the increase in the number of members, EPF needed to generate RM8.25 bil­ lion to pay out every 1% dividend for Simpanan Konvensional and RM972 million for every 1% dividend for Simpanan Shariah in 2020.

EPF’s responses to the difficult times in 2020 – economy, markets, jobs, COVID-19

The EPF also implemented several key mea­sures to assist members and employers to cope with cash flow issues following the Movement Control Order from 18 March 2020 to 12 May 2020 when most economic sectors were shuttered.

In fact, the EPF was one of the first pension funds in the world to provide assistance to its members during the pandemic, by rolling out the hassle free i­Lestari Account 2 Withdrawal Scheme to provide financial relief to members. To date, a total of RM18.1 billion has been withdrawn by 5.16 million members under the i­Lestari facility.

Other measures included allowing members to lower their mandatory statutory contri­bution to 7% from 11%, effective April 2020 to December 2020. The EPF also ensured that employers were able to sustain their costs and continue to retain their employees by offering the Employer COVID­-19 Assistance Programme (e­CAP), specifically targeted at small-­and­ medium enterprises (SMEs). e­CAP provides eligible SMEs the option to apply for a defer­ment and restructuring of the employer’s share of EPF contributions. The measure benefited 13,090 employers with a cumulative value of RM84.95 million.

To ensure the safety of our employees and members, the EPF was quick to adapt to the new reality of “low touch, high distance” service through the introduction of Janji Temu Online (JTO).

Through JTO, EPF ensured that social distancing measures and SOPs were strictly observed while the number of visitors was reduced at our physical branches.

Outlook for 2021

Commenting on the outlook for the year, Ahmad Badri said: “The vaccine rollout in 2021 will have important bearings on the outlook for the year, as we are also cognisant of new strains of COVID­-19 that are easily transmitted.

“However, we believe that the situation is being well managed, with governments every­where ensuring that the vaccines get to the people as efficiently as possible while in Malay­sia, the first batch of vaccines has arrived and will soon be administered to the population.

“The EPF, being a 70­-year­-old institution and one of the oldest pension funds in the world, will remain focused on our mandate to help members have enough savings for a sustainable retirement.

“We will also embark on a new withdrawal scheme to allow members to purchase insu­rance or Takaful products that was announced in Budget 2021, slated by the end of the year.

“We are also pleased to share that the EPF is the first institutional investor to establish the largest Shariah­-compliant Private Equity co­-investments mandate in the world, with the launch of the US$600 million Shariah Private Equity Co­-Invest­ment Separate Managed Account,” he said adding that the initiative bodes well for the PF’s Simpanan Shariah fund, in which members’ savings balance has crossed the RM100 billion mark and continues to grow sustainably.

To date, 1.12 million EPF members have opted for the Simpanan Shariah, which was launched in 2016. The initiative was introduced to meet the demands of members to have their EPF savings managed and invested according to Shariah principles.

“The COVID­-19 pandemic has been the great revealer for all of us, necessitating urgent solutions within a short period of time.

“As we work towards safeguarding and growing our members’ retirement savings in a volatile and uncertain environment, our emphasis on Environment, Social, and Gover­nance (ESG) investing will serve as an anchor and an effective risk mitigation tool, as well as being value drivers for our investments that will create social impact that could last beyond financial returns,” Ahmad Badri added.