Look for a golden goose — Lim Sue Goan
FEB 21 — The Employees Provident Fund (EPF) has declared a dividend of six per cent for last year and many people believe that the next general election should be approaching soon. How wonderful it would be if it happened every year?
The working class does not have spare money for savings and investment. Therefore, they rely on the EPF dividend to ensure they have sufficient money to survive in retirement.
According to the EPF data two years ago, only about 6,000 people among its total 12 million members had over a million ringgit of savings, 5.45 million of people had less than RM150,000 and 58,000 54-year-old members had only about RM140,000 of savings.
In addition, a survey conducted a few years ago also showed that about 60 per cent of retirees had cleaned out their savings in just three years, or survived on only RM370 a month.
Based on the current standard of living, at least RM2,000 would be needed to survive and RM140,000 could support only 70 months, or 5.8 years. In other words, they would have to suffer after the age of 60.
The Malaysian population is gradually aging. It is estimated that senior citizens would increase to 15 per cent in 2035. If the situation does not improve, taking care of the elderly will be a big problem in the future.
The lack of EPF savings is closely related to low incomes. Currently, the employee contribution rate is 11 per cent while employers contribute 12 per cent. And for those in the private sector earning RM5,000 and below, employers’ contribution has been increased by one to 13 per cent, beginning this year.
If an employee earns RM2,000 per month, based on the total contribution rate of 24 per cent, he saves only RM480 a month, and RM5,760 a year. If annual increment is excluded, he can save only RM115, 200 after 20 years.
In Singapore, the Central Provident Fund (CPF) contribution rate for employer is 15.5 per cent while employees contribute 20 per cent. To deal with age-related problems, the contribution rate for employees above 50 was increased this year.
High salary in Singapore enables the restoration of contribution rate to 36 per cent. The Singaporean government uses the savings for overseas investment. Although they have earned much, the annual dividend rate is low. From 1 April to 30 June this year, CPF members enjoy only a dividend rate of only 2.5 per cent.
Since we do not have the conditions to require such a high contribution rate, we should then make adjustments in salaries and investment returns. The six per cent dividend is not the highest rate in history, as the dividend rate from 1980 to 1982 was six per cent and it hit 8.5 per cent from 1983 to 1986. It reduced to eight per cent from 1987 to 1994 and remained low after that.
If the dividend rate is closely related to the country’s economic development, then how could it hit eight per cent during the recession of the 1980s? Therefore, the key factors should be investment strategy and vision.
American business magnate, investor, and philanthropist Warren Buffett’s advice should be used as a reference for the EPF. He said, “Stocks, or investments in any ‘productive’ asset, will prove to be the runaway winner over bonds or gold over any extended period of time ... and more important, it will be by far the safest, as purchasing a manufacturing company means you will always produce something that people are willing to buy.”
Malaysia’s market is too small while the most secure investment with high returns can be found in foreign market. The EPF should bravely explore the outside world and find a golden goose for its members. — mysinchew.com
* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.