KUALA LUMPUR ,Feb 16– Economists are expecting the Employees Provident Fund (EPF) to declare a decent 2020 dividend of between 4.5% and 5.5%.
This is due to its well-diversified investments, both locally and overseas.
The EPF is expected to announce its 2020 dividends this Saturday.
The fund had declared its lowest dividend in more than a decade at 5.45% in 2019, which is expected to weaken further in 2020 due to the economic slowdown sparked by the Covid-19 pandemic.
Universiti Putra Malaysia’s Putra Business School lecturer Assoc Prof Ahmed Razman Abdul Latiff told The Vibes that EPF’s ability to pay higher dividends could also be affected by the i-Sinar and i-Lestari assistance schemes.
“Even though the EPF dividend has never exceeded the ASB (Amanah Saham Bumiputera) dividend in any particular year, this time – maybe for the first time – the EPF dividend will be higher than the 4.25% ASB dividend declared by Permodalan Nasional Bhd recently.
“The lowest rate declared by EPF within the last 20 years was 4.25% back in 2002 and the second lowest was 4.5% in 2008, 12 years ago.
“Compared with the 2019 dividend, I don’t think EPF will want to declare the lowest dividend ever in its history and will, instead, give a minimum 4.5%, which is lower than the 2019 dividend but will not be the lowest since 1962 (4%).”
He added that the i-Lestari programme, which was launched to help those affected by Covid-19, saw RM14.41 billion withdrawn from members’ Account 2 since April last year.
Combined with the i-Sinar programme, more than RM34 billion has been withdrawn, which is equivalent to 3.6% of EPF’s assets, excluding the potential additional withdrawal from Category 2 i-Sinar, which is still pending.
“This has the potential of affecting the dividend rate as EPF has to increase its holding in money market instruments, which is more liquid, but will normally give lower returns than other asset classes,” said Razman.
He said other asset classes, such as overseas investment, fixed-income and real estate investments, have been performing well recently, which could allow EPF to continue giving a competitive dividend rate.
He added one advantage for EPF is its high percentage holding of overseas investments assets, which consistently give higher returns than other asset classes.
For example, 32% of the EPF’s investment assets are overseas, contributing 45% of the RM17.33 billion in total gross investment income in the third quarter of 2020.
That’s up from 30% of its assets that contributed 39% of its RM15.12 billion gross investment income in the second quarter of 2020.
The EPF has 14.8 million members, 7.6 million of whom are active members. Before the pandemic, the fund received net deposits of RM1.7 billion per month.
But when the pandemic broke out, the unemployment rate soared to 5.3% and more than 200,000 lost their jobs, causing workers’ EPF contributions to fall.
However, Razman said as the 12th-largest pension fund in the world with assets nearing RM1 trillion, throughout the years, EPF has been managed professionally, contributing to its consistency in giving good returns on yearly investment.
“Post-2020, I am confident that EPF can maintain and even start to give a higher dividend rate than 2020 as the global economy will begin its recovery phase and companies will start to employ workers again.
“In addition, economic recovery will be strengthened by the distribution of vaccines worldwide and the opening of borders.”
Meanwhile, Bank Islam chief economist Mohd Afzanizam Abd Rashid said EPF’s dividend rate should reflect the current reality.
“It was a recession year (2020) and volatility was clearly visible, suggesting that the investment risk was high last year.
“Therefore, the dividend could be lower compared with 2019, probably in the vicinity of 4.5% to 4.8%.
“Going forward, the dividend rate will be dependent upon the pace of economic recovery,” Afzanizam told The Vibes.
He said that means reaching herd immunity from Covid-19 as planned, as this will determine the pace of the recovery for Malaysia’s economy.
“Nonetheless, global equities have been staging commendable performances thus far.
“Theoretically, 2021’s dividend rate should be better than 2020’s.”
Former prime minister Datuk Seri Najib Razak had recently predicted that the EPF’s annual dividend for 2020 will be higher than PNB’s 4.25% dividend for the ASB.
In a Facebook post on Sunday, Najib said EPF will likely post higher dividends due to its overseas investments, which yield better returns than domestic ones.