It is estimated that 2021 will require around RM10b for every 1% dividend payout

by NUR HANANI AZMAN / pic by MUHD AMIN NAHARUL

THE Employees Provident Fund (EPF) is expected to pay a higher dividend for 2021, thanks to a well-diversified portfolio under its Strategic Asset Allocation and prudent measures despite the pandemic.

Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latiff said EPF’s equity asset class always recorded the highest investment income, especially its overseas equity investment, and this will continue to be the trend in 2021, especially with the ongoing global economic recovery.

He said in 2020, EPF generated RM60.98 billion in gross income and allocated RM47.64 billion for the dividend, with an average of RM9.22 billion for every 1% dividend. It is estimated that 2021 will require around RM10 billion for every 1% dividend.

“That means if EPF wanted to pay a higher dividend in 2021, for example 6%, the dividend declared needed to be RM60 billion, an increase of RM12.36 billion from 2020. Therefore, 2021’s dividend will be higher than 2020, but not too much.

“I expect that the EPF dividend for 2021 will probably be around 5.2% to 5.5% for Conventional Savings and 4.9% to 5.2% for Shariah Savings,” he told The Malaysian Reserve (TMR).

The EPF declared a dividend of 5.2% for Conventional Savings and 4.9% for Shariah Savings for 2020. For 2019, EPF declared dividends of 5.45% for Conventional Savings and 5% for Shariah Savings.

According to Ahmed Razman, as at Nov 3, 2021, RM20.8 billion has been disbursed under i-Lestari and RM58.8 billion under i-Sinar. On top of RM21.5 billion approved under i-Citra, the total amount withdrawn would be RM101 billion.

“However, annual contribution is always on the rise every year and 2021 shall see the annual contribution probably reach more than RM80 billion, with surplus around RM25 to RM30 billion. In addition, there will be no significant applications after this for these three programmes.

“Therefore, there is enough surplus every year to ensure that EPF dividend will not be strained,” he added.

The fund recorded RM34.05 billion in total investment income for the first half ended June 30, 2021 (1H21), an increase of RM6.79 billion or 25% compared to RM27.26 billion a year earlier.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said EPF will balance its asset and liability mismatching. By having an exposure in the money markets, it will allow the EPF to manage its liquidity requirement, including demand for withdrawals from its members, more effectively.

Hence, he said it should not affect the dividend targets for the year in a big way as there is always sufficient liquidity to meet the withdrawal demands.

“Based on the EPF’s 1H21 performance, the EPF should be on track to deliver better results this year. Given that the global equities market has done well, the EPF might be able to announce a slightly higher dividend rate for 2021.

“Equities will be the main driving factor for higher income. Interest rates continue to remain low this year. In that sense, contribution to income from fixed income and the money market would be limited. The upside potential will continue to be underpinned by equities, especially from the global markets,” he told TMR.

However, economic analyst Assoc Prof Dr Baharom Abdul Hamid does not think EPF would pay a higher dividend — the best case scenario would be on par with the previous year.

He said EPF had to sell some of the “good” assets in its portfolios in the first quarter of 2021 to cater to i-Sinar withdrawals, as well as to balance the lower contributions due to the reduction in the statutory contribution rates.

“Though some of EPF’s overseas investment performed well, overall I opined that EPF could not afford to pay higher dividends considering withdrawal facility due to pandemic definitely have a causal effect — EPF’s liquidity strategy as well as management had to be changed, tweaked to cater to these withdrawals.

“Diversification to a certain extent contributes to balance it. But restructuring, due to the significant difference in the size of available funds, both due to lower statutory contribution as well as withdrawals, which had deviated from original forecast pre-pandemic,” he told TMR.