My Wealth: EPF Dividend Policy

Salaam and Good Blessings...

EPF will be announcing the 2009 dividends soon. If most of you are like me, you'd be keen to know what sort of levels will we be seeing this year. Lets tust take a quick look at how EPF did several years back.

In 2008 EPF declared 4.5% dividend to its members, which is lower than the previous year. EPF accounts this to "investment provisioning resulting from the sharp decline in global equity prices brought about by the worldwide financial crisis."

EPF made a huge provision of (RM4.6billion in the same year that they earned the highest ever gross income in 2008) due to reduced equity value as a result of sharp fall in prices. This provision had effected their net earnings in an environment of not selling off their share holding. However, as the usual case of provisions, it will be written back once the market recovers. However, the announced dividend is definitely better than the 12-months FD rate offered by banks.

EPF declared that, of the RM4.69 billion provision described above, RM3.2 billion was allocated for overseas equities. In the FY2007 similar provision was just RM0.52billion. The reason for such a large differential is due the massive drop in equity markets especially in the fourth quarter of last 2008.

Despite this provisions, equities remained as the second biggest contributor to the EPF’s total gross income bringing in RM6.67 billion in 2008 compared to RM5.37 billion in 2007.

EPF proudly reports that their efforts and performance compares better than many other similar funds around the world. For example: (Source: KWSP)

The Government Pension Fund of Norway suffered a USD92 billion (RM340 billion) loss on its investments in 2008. (BBC News, 11 March 2009).

Temasek Holdings of Singapore suffered S$58 billion (RM140 billion) paper loss in eight months. (BT Singapore, 11 Feb 2009).

Government of Singapore Investment Corporation Private Limited (GIC) asset value fell 25 per cent from its peak. (Bloomberg, 5 March 2009).

California Public Employees’ Retirement System (CalPERS) suffered a USD68 billion (RM248.2 billion) loss in assets since October 2007 and a 41 per cent slide in its stock portfolio. (Bloomberg, 26 Feb 2009).

Khazanah Nasional Bhd suffered a loss of one fifth of its investment portfolio and its realisable asset value of RM88.2 billion as of May 31 was reduced to RM70.4 billion at the end of 2008. (BT, 20 January 2009).

Granted that they did better than most of the benchmarks above, we do wish that the soon to be announced dividends will help us enough to protect and build our retirement nest egg.

For your information, EPF's 10 years and 20 years average dividends are 5.18% and 6.34% respectively. If you are comfortable with these numbers then you don't need to do anything...but I can tell you that many aren't pleased.

There have been an increase in EPF members who withdraw from their Account 1 to invest in alternative instruments that can give better returns.

Unit Turst investing has been the favorite vehicle for most of them - as 71% of members withdraw to invest in unit trust.

When your retirement future is jeopardized by low providing instruments, you ought to review your retirement planning with your financial planners to ensure a secured lifestyle...