THERE are three ways the Employees’ Provident Fund (EPF) can replenish the RM70 billion expected to be withdrawn from Account 1 with some help from the government, said former prime minister Najib Razak.
He was responding to Subang MP Wong Chen’s concerns on whether EPF could afford the withdrawals through the i-Sinar scheme and if the Finance Ministry was trying to please Umno.
Najib said his “motivation” is to help those in need and save the economy.
EPF could raise back the employer/employee statutory contribution rate after the country recovers from the Covid-19 crisis, he said.
The government can also provide lucrative projects with above-normal returns to the pension fund as he did during his stint as prime minister, with the Kwasa Damansara, Battersea UK and 49% ownership of PLUS highways.
Najib also proposed that EPF restructure its dividend payout where the lowest account holders are paid a higher dividend rate compared with those with the higher balances.
This works in a reverse to how banks pay their interest whereby the higher account balance is paid a higher dividend.
Najib said he wanted to implement this mechanism in 2017 when he was in power but was hindered by the existing laws, which have to be amended to pave way for this.
“As per the EPF annual report, 0.4% of account holders own more money than the bottom 51.91%. In fact, 28,727 EPF members having about RM47.2 billion worth of savings in EPF – or an average RM1.64 million per depositor,” he said in a Facebook post.
“As EPF’s primary goal is to ensure all Malaysians have adequate savings in their old age, I see no reason the richest Malaysians should enjoy a completely risk-free (all EPF deposits are guaranteed by the government) above-market-rate dividend from EPF every year.
“Therefore, I believe that a greater share of the profits generated by EPF every year should go to those with the lowest balances so that more Malaysians can reach adequate retirement savings quicker instead of benefiting those who already have more than enough to live comfortably in retirement.”
With the RM70 billion EPF withdrawals, more money will be injected into the economy.
The EPF withdrawals and extension of loan moratoriums will put more cash into the people’s hands to stimulate the local economy as well as to help those most in need but overlooked earlier, he said.
“Actually, EPF will not need to ‘raise’ or ‘borrow’ additional funds.”
Najib said Section 26 of the EPF Act stipulates that at least 50% of EPF assets must be in the form of government securities or bonds and the limit can be relaxed with written approval from MoF.
Therefore, 50% of the its assets of around RM940 billion is currently in liquid form and an outfall of RM70 billion is just 7.4% of the pension funds total asset, he said.
Yields from the liquid assets are also typically lower than EPF’s annual dividend because of the low interest rate environment.
“This means liquidating this government bonds’ asset class will not lower EPF’s yearly dividends as there is no need for EPF to liquidate its higher-return assets, such as equities, direct ownership in companies and properties.” – November 29, 2020.
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