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Press Statement

by Lim Guan Eng

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(Petaling Jaya, Tuesday) : EPF should not underestimate the required savings amount for retirees and exercise caution before allowing contributors to withdraw their savings for investments in unit trusts until they have removed 33 out of the 42 TFM that lost RM 600 million in 2006. EPF chief executive officer Datuk Azlan Zainol said today that from February 1 2008, contributors will be able to withdraw part of their funds and channel them to approved investment programmes such as unit trusts.

Currently, contributors can only do so if they have in excess of RM 50, 000. EPF has fixed the “required amount” of savings as RM 120,000 which means only those amounts in excess of RM 120,000 can be invested in unit trusts approved by the EPF. EPF is making two erroneous assumptions. The first erroneous assumption is that the sum of RM 500 a month is sufficient to enable a retiree to live over a 20-year period until he or she is 75 years old, the average life expectancy of Malaysians.

This assumption is wrong as RM 500 monthly is not enough when it is even below the poverty level of RM 691 per month in Malaysia (RM 661 for Peninsular Malaysia, RM 88 for Sabah and RM 765 for Sarawak). In fact this RM 500 per month is just above the hard-core poverty level of RM 415. A monthly income of RM 1,000 for rural areas and RM 1,500 for urban areas is necessary to ensure retirees can enjoy a reasonable standard of living, including high medical bills. This would require required savings of RM 240,000 for retirees living in rural areas and RM 360,000 for those living in urban areas.

EPF should not forget that its primary duty is to ensure a sufficient savings pool for retirees to enable to live in dignity and not in poverty as a reward for their contributions towards nation-building and economic development. Malaysia would not be where it is today without the hard work and sacrifice of these retirees.

EPF has an onerous task to ensure that there is sufficient required savings for retirees and that these savings are not placed under undue risk of loss. That is why the second assumption made by EPF that its list of approved investments for EPF contributors are sound and risk-free is wrong when EPF does not have a good track record in identifying reliable and well-performing TFMs.

As a national savings scheme, the EPF main function is to provide basic financial security for retirement. In its commitment towards preserving and growing the savings of its members in accordance with best practices in investment and corporate governance, prudence is the guiding principle.

In this regard, DAP regrets the failure of EPF to act last year on the poor performance of trust fund management institutions resulting in the value of those investing in unit trust funds dropping by RM 600 million from the initial value in investments of RM 9.76 billion when it was first introduced in 1996 to RM 9.15 billion in December 2005. 33 TFMs out of the 42 TFMs appointed or a high 78% recorded negative returns.

Such poor performance is shocking and EPF must answer why it has failed to remove the 33 TFMs that lost RM 600 million from the EPF Panel to protect EPF members investing in loss-making unit trust funds since 1966. Up to now, EPF members do not know which are the loss-making TFMs and these should be weeded out to ensure only the profit-making performers TFMs remain. To allow the loss-making TFMs to continue to manage EPF members’ funds is most irresponsible, unprofessional, unethical and a complete breach of EPF statutory obligation to protect the interests of its members.

Instead of allowing contributors to take out their money, EPF should concentrate on improving their performance by increasing the rates of returns to investments so as to give contributors a higher dividend rate. EPF’s dividend rate should be increased from the present 5.15% to its 15-year golden period from 1980 to 1994 of 8 to 8.5%.

There is no doubt that the EPF Investment Panel MUST assumes full responsibility of their dismal performance in running investments in the EPF as compared to Lembaga Tabung Angkatan Tentera (LTAT). If LTAT can declare a dividend, bonus and special bonus of 15.75% in 2004, why is it that EPF declared only a 4.75% dividend for the year 2004? In 2005, EPF declared a dividend of 5%, whilst LTAT declared 15.75%. Last year, EPF declared a dividend of 5.15% as compared to LTAT’s 15%.

EPF contributors and retirees would be better served if EPF changes its Investment Panel to be replaced them with the Investment Panel of LTAT to enjoy rates of 15%, which is three times better than that attained by EPF.