CNA – The Employees Provident Fund (EPF), a MYR1-trillion (USD222.2-billion) state investment vehicle, has been asked by the Anwar Ibrahim administration to increase the size of its domestic portfolio in order to spur the Malaysian economy.
However, this pivot is not a straightforward exercise, those familiar with the issue told CNA.
A set of withdrawals in 2021 and 2022 was approved by the administrations of Muhyiddin Yassin and Ismail Sabri Yaakob to help ordinary Malaysians contributing to the pension fund deal with financial difficulties during the COVID-19 pandemic. The withdrawals have radically altered the national savings demographic for a rapidly ageing nation that is already facing challenges over the lack of pension coverage.
Following the withdrawals, the median savings of EPF account holders halved in 2022 compared to 2019, Deputy Finance Minister Ahmad Maslan told Parliament in February.
Anwar, who has taken a politically unpopular stand against further withdrawals, noted more recently that 81 per cent of EPF’s roughly 15 million contributors will not have sufficient savings to live above the poverty line when they retire.
He added that only 19 per cent have MYR240,000 in their personal financial reserves by the time they reach the retirement age of 55 years.
MYR240,000 is the basic savings target for contributors when they retire at the age of 55, but analysts and economists believe that the benchmark is no longer feasible with the sharp rise in the cost of living.
On the other end of the spectrum, 0.5 per cent of EPF members, who collectively have 12.4 per cent of the savings managed by the fund in end-2020, have at least MYR10 million each saved with the pension fund.
Anwar stands firm against further pension fund withdrawals amid likely politicisation of issue in Malaysia.
This lopsided coverage profile has led to criticism that the EPF has morphed into an investment and savings vehicle for the rich. Senior pension fund executives told CNA that this impression is tough to refute.
The prime minister has also asked EPF to invest more domestically to aid the economy. “This is for the current needs of the country and taking into account the needs of the people,” he said earlier this month.
The EPF, which the World Bank ranked as the 15th largest pension fund globally in a 2018 study that also credited the institution for its strong governance culture, has a central role in the economy.
Set up in 1949, eight years before Malaysia gained independence, the EPF has grown in both size and stature. It has investments in all major markets, in particular North America, Europe and Asia, as well as direct investments in equities, fixed-income financial instruments, real estate and infrastructure.
EPF’s asset base of over MYR1 trillion is larger than all the other government-linked investment corporations, such as government fund management company Permodalan Nasional Bnd (PNB), the government pension fund known as KWAP, sovereign wealth fund Khazanah Nasional Bhd and the army pension fund called LTAT, put together.
The EPF has been instrumental in Malaysia’s economic development.
PIVOTING TOWARDS DOMESTIC INVESTMENTS
EPF’s solid financial standing has prompted the Anwar administration to lean more heavily on the fund to spur the economy with a controversial proposal to increase the size of its domestic investments to 70 per cent this year from 64 per cent at the end of 2022.
This has been criticised by private economists as government intervention in the agency’s management.
EPF officials, who spoke on condition of anonymity, noted that the six percentage point increase is something that will be hard to meet.
“EPF is a huge supercarrier and to change direction will take time especially when a six percentage point increase means MYR60 billion,” said one senior executive at the pension fund’s portfolio investment division, adding that Anwar’s latest request could take at least three years to realise.
Sunway University professor Yeah Kim Leng noted that the government needs to introduce new policies to encourage savings.
“There will naturally be an increase in EPF’s investments locally with the higher expansion in the domestic economy but the size should not be something cast in stone because the fund should have the global economy as its market to get the best returns.”
