KUALA LUMPUR – Economists are buoyant that the Employees Provident Fund (EPF) will announce a higher 2023 dividend rate tomorrow compared to the previous year, despite last year’s economic challenges.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid told Scoop he expects the dividend rate for 2023 to be around 5.5% to 6%, which is higher than 2022, as investment profits as of last September conveyed optimistic signs.
“So far, EPF has done well, with total investment income growing by 33% for the first nine months of 2023,” he said.
The Finance Ministry had said 6.3 million members under the age of 55, or 48% of EPF contributors, had less than RM10,000 in their accounts as of September 30 last year.
Afzanizam advised those members with lower savings in their EPF accounts to be prudent in their personal finances.
Meanwhile, Shankaran Nambiar, head of research at the Malaysian Institute of Economic Research (MIER), said the current global economic slowdown is expected to affect both domestic and overseas investments, including the EPF’s profit.
“The decreasing return from these investments will be reflected in lower dividends (in EPF).
“This might be tolerable for those with a variety of assets and adequate savings, but surely not for those with meagre incomes during their working lives,” he told Scoop.
Nambiar said those with EPF savings of RM10,000 or less will be going through a hard time, adding that the government should be introducing new plans to help them.
“The government should introduce a basic income for retirees by improving public health care facilities and making them more accessible.
“We cannot keep running away from this problem. There is no way out except to increase direct taxes. The government has to prepare for an ageing population, especially for those with limited income.”
He added that the authorities should introduce a healthcare financing system and cannot simply pass this matter to the private sector.
What is EPF dividend?
The funds are not just to secure savings for financial stability in retirement years, they also return the bonus from their annual investment profits to their contributors through dividends.
The EPF dividend is a yearly payment that is deposited into the members’ accounts once it has earned profit from its investment assets.
The annual dividend payout is credited based on the account holder’s savings as of the first day of January every year, which is calculated based on the member’s daily aggregate balance.
The dividend percentage varies every year, as it depends on several factors, including market losses, investment costs, and other similar expenditures.
How is the EPF dividend rate calculated?
The “Modified Aggregate Daily Balance” is used to calculate the dividend, with contributions made during a given month being eligible for payout as of the final day of that month until December 31 of each year.
The rate for savings under shariah and savings under conventional law would differ since dividends are declared based on the real performance of the funds involved in the investments.
With a minimum payout of 2.5%, the rate for regular accounts will be set based on the profitability of the investment.
The fixed rate of 2.5% per year on members’ savings is assured under Section 27 of the EPF Act 1991, where the members are guaranteed to receive the minimum dividend rate in any situation.
However, the dividend rate for shariah savings is based on the actual performance of a shariah-compliant investment without any minimum guaranteed dividend of 2.5%.
Every year, the rate will be proposed by the EPF management to its board, which will be sent to the Finance Minister later for approval.
Last year, EPF distributed a total of RM51.14 billion in dividends for the year 2022, where RM45.44 billion went to conventional savings with a 5.35% rate and the remaining RM5.7 billion went to shariah-compliant accounts with a 4.75% rate.
The dividends on conventional and shariah accounts were 6.1% and 5.65%, respectively, for 2021, which was higher than the rate in 2022.
For the year 2020, the dividend rate on ordinary accounts was 5.2%, while the payout on shariah accounts was 4.9%.
The largest dividends paid out by EPF were 8.5% between 1983 and 1987, and 8% between 1988 and 1994.
Differences between Account 1 and Account 2
Currently, EPF offers members two accounts – Account 1 will receive 70% of the monthly contribution for savings, while Account 2 will receive the remaining 30% for withdrawal allowances.
In order to control the growth of the retirement fund as the EPF utilises the savings as a model to make investments that contribute to the annual dividends, Account 1 is barred from withdrawals until the account holders turn 50 years old.
However, the contributors are allowed to cash out from Account 2 for EPF-approved uses, such as paying off education loans or home loans.
Last year, then Deputy Finance Minister Datuk Seri Ahmad Maslan said the EPF would introduce a flexible third account that allows emergency withdrawals for individual contributors by April 2024.
According to EPF, the total investment income in 2023 as of September 30 last year amounted to RM47.86 billion, which was 33% higher than the RM36.04 billion recorded in the same period in 2022.
As for the first nine months of 2023, the total number of EPF members has been recorded at 15.99 million, and 8.53 million of them are active members, representing 50.4% of Malaysia’s labour force. – March 2, 2024
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