Tuesday, May 18, 2010

EPF and My Retirement Planning

In March 2010, EPF declares 5.65% dividend for year 2009. Is it good enough? Is it too low? It depends on your perception and ..... many many factors.

Many Malaysian depends "solely" on EPF for retirement. It is one of the best "pension" scheme ever created. However things have change over the decades and the change is getting faster than ordinary Malaysian can comprehend.

From year 1983 to year 1994 - the golden years for EPF Contributors. Average return above 8.0%
From 1995 to 2000 - not so bad, still have on average above 6.5%
From 2000 to 2009 - Alert!! Alert!! We have only on average 5.06%

What has happened?

According to many articles and publications,
1. EPF size is too "huge" now compared to years ago. So, it is not easy to get high return for all member
2. Losing some money to rescue somebody. [beyond the topic]

By May 2010, EPF has a total fund size of RM370b... some estimate it will grow to RM500b by 2013. How "huge" is RM370b?

RM1 b = RM1,000,000 x 1,000

RM370b = RM1,000,000 x 370,000
The Dilemma of EPF now is how to get better return for its members yet not risking the principal. Lets look at the portfolio of EPF fund's allocation.

The following extracted from http://tonypua.blogspot.com/

As it is EPF equities investments has increased from RM46.9 billion in 2005 to RM93.9 billion in 2009. This represents a significant increase in allocation to equity from 18.0% to 26.5%. At the same time, EPF's fund allocation to the safest of instruments, the Malaysian Government Securities (MGS) has declined significantly from 39.2% to 27.5% over the same period.

What is also notable, is the fact that EPF's “loans” portfolio has increased significantly over this period as well, increasing from RM94.36 billion (36.3%) in 2005 to RM145.75 billion (41.2%) in 2009. In part, this is related to a series of loans mandated by the Government such as a RM5 billion loan by EPF to ValueCap to invest in the stock market, as well as up to RM10 billion to Khazanah Nasional for the 2009 economic stimulus plan.
retirementassetallocation Retirement Asset Allocation


Above "facts" tell us that more money has been injected into our BURSA. Anyone who does active investment knows that EPF can't easily get out from Bursa without inserting a selling pressure. In years to come, our retirement fund (EPF) will become too "market related" and unnecessary exposure to risk, 1.2 million members' retirement money.