The holdings (or total amounts in the EPF accounts) of each EPF member is lopsided.

As mentioned in the previous post, about 0.4% of the EPF members/contributors are holding almost the same amount of money held by the other 51% of the EPF members.

If the number of EPF members is about 15 million, the 0.4% is 60,000 members/contributors.

Let's say, the total dividend payout annually is in billions... about 46 billion for 2019.

This works out to:
The top 0.4% is getting an average of RM 766,666. per person/contributor.

The bottom 51% is getting an average of RM 6013 per person/contributor.

So if the government is giving preferred rates to EPF, the bulk of money does not tickles down to the average contributors, who are the targeted group of people the goverment had in mind when they hands out the higher preferred bond rates to EPF.

Part of the suggestion is to stimulate the economy.

The money withdrawn will have to go somewhere...

There are other parts in the suggestion and idea behind the proposed tier rates. The para in the 1st post was copied from Najib's facebook. Had left out the other parts... don't want to bring in a political debate into this thread.

Yes, you're right. I have noticed the error too. But the gist of the argument remains.

0.4% of the total members is holding almost the same amount of money inside EPF as the bottom 51% of the total members.

As a whole, both the top 0.4% and bottom 51% group of people is getting the same total amount in dividend payout.

So, if the same total amount is divided by the 60,000 members and about 7.5 million members, respectively, the ratio is 1:127.

Very lopsided...

=====

come to think about it... the number of accounts holding small sums of money could be "dead" accounts, and thus exagerates the number of EPF members in the bottom 50%.



This post has been edited by j.passing.by: Nov 29 2020, 03:27 PM

Within the above article, there is a graphic showing 2 assumptions of the tiered rates... 2.5% and 0% for > 1,000,000.

The 2.5% is the minimum guranteed annual dividend by law. It is the more likely assumption.

As mentioned in the article, EPF is cash rich... "Before the Covid-19 pandemic, EPF received roughly RM1.7 billion in net inflow of cash on average every month. Between January 2015 and December 2019, contributions always exceeded withdrawals by RM600 million to RM3 billion a month..."

Once tiered rates is introduced, I would forsee it happening in other special trust funds too like ASB.

Tier rate only means that the portion of the savings above a set ceiling will be getting a lower dividend or no dividend. As in the article, the portion of savings above RM1,000,000 is getting either 0% or 2.5%.

If the EPF member has over RM1 million in his Account 1, he can withdraw the excess amount.

The article is using data from active members, which is about 50% of all members. The other half is inactive, mostly retired and above age 55.

Previously, dividends was said to be paid till age 75. Now it is age 100.

If tier rates happened, retirees with more than 1 million in his account will need to consider other means to get higher annual dividends to fund his retirement. As it is, the ringgit is getting smaller and smaller, a million ringgit is not that a big amount compare to 2-3 decades ago.

The article, as I have done previously a few pages back in this forum, has too many tiers in the rates. What most likely would be a set ceiling and 2 rates only... a normal and a lower rate... anything above X amount, gets 2.5%.

It will deter some folks parking their money under their aged parent's account who can withdraw the money at any moment for the better than FD rates.

Mind you, it is not small amount either... can be tens of millions. How to do it when there is a limit of 60k a year in self contribution?

Well, if you are rich and your parent has tons of cash inside EPF, you can fund your parents retirement, medical bills and funeral expenses, leaving their EPF untouched... (just make sure you are the sole beneficiary.)

But why you worry too much? You are good in unit trust funds... EPF would not be your only retirement portfolio.

------------

Why 2 tiers only? A normal rate like 6% and a lower excess rate of 2.5%?

About half of EPF total members are inactive... and the bulk of them has about 60k or less.

In the article (with only data on active members), they already chop the rate to 4% to accounts > 300,000, so that 50k-100k can get 7%.

If the inactive members are included, all in would be about 10-12 million members under 100k. For 10 million members to get extra RM100 each person, it is not a small amount of money to dig out somewhere... 10,000,000 x 100 = 1 billion.

So, for RM300, which is less than RM30 a month... EPF would have to cut out RM3 billion from somewhere or some persons.

That would be too much feathers ruffle and to the ones who benefits, the extra benefits would be most likely unappreciated.

(And lastly, we don't know how many of the active workers are foreign workers, who can withdraw all from EPF when they return home.)

EPF is the fund for retirement, and recent changes had made it better:

- dividends paid till age 100.

- upon age 55, Account 1 and 2 are combined into Account 55.

- Account 55 can be withdrawn online... no limits on the withdrawal frequency and amount. Better than FD.

- if the epf member is still working after age 55, his contributions are into another Account Emas, and it can only be withdrawn at age 60.

- if the member has more than 1 million in Account 1, he can withdraw the excess amount (before reaching age 55).

- And best of all, EPF has becomes an online agent for selling unit trust funds. EPF members, who have excess amount in their Account 1, can purchase unit trust funds at special low rates.

Hence, because of the difficulties of setting up tier rates as explained in above post and EPF's objective of being The Fund for retirement, I don't think tier rates will happen.

If EPF has issues with some members putting in too much and excessive amount of money into it, and since EPF cannot close the fund to fresh investments (as like other unit trust companies), they can make a new policy on not paying dividends (or the guaranteed rate of 2.5%) on the portion of the accounts that are above the X amount.

This policy is similar to paying dividends till age 100. This means no more dividends even if the member is still alive and kicking after age 100.

And I think the cut-off X amount would most likely be a fairly high amount so that it would only be revised after at least 5-10 years due to inflation.

The cut-off point or ceiling amount, I guess, would be RM2 million.

I wonder why financial writers always classified EPF as a pension fund. EPF does not provide any pension to retirees.

Rather, EPF is a mutual fund, and it pays annual dividend as like any other mutual fund to its account holders.

To most retirees with money still inside EPF, the annual dividend paid each year would determine whether they have enough money to last their lives.

To tighten or loosen the belt, each percentage in the dividend is a notch in the belt.

The main objective in i-sinar is to stimulate the economy. Thus, I applauded that it is now open to all members (below age 55.)

The size of the nest egg each member has inside EPF when he/she reached retirement age is determined by his/her monthly contributions and also the annual dividend compounded over many years.

The nest eggs are proportionally linked to continuous employment, and jobs openings are strongly tied to the country’s economy.

Opinions that i-sinar withdrawals would result in members having inadequate savings at retirement age are barking up the wrong tree.

Pension by simple definition is regular payments received in one's retirement. Regular in both a) equal intervals and b) amounts.

A pension fund would be as in a pension scheme in the public sector, like KWAP (Kumpulan Wang Persaraan) paying a monthly fixed amount to retired public servants.

EPF is Employees Provident Fund - an investment fund contributed by employees and employers.

The difference between EPF and KWAP is that EPF pays annual dividend on the holdings held by each EPF member, and the annual dividend is based on the annual returns on the fund’s investments.

Whereas KWAP have to pay a fixed monthly amount to every public servant regardless of its investment returns.

"The biggest difference between pension and mutual fund is accessibility to the fund."
"Accessibility" does not make EPF a pension fund. EPF is a special mutual fund geared for savings toward retirement. A mutual fund can have any condition listed in its prospectus.

(EPF member at age 55 can withdraw any amount he likes... all of it at once or in a fixed amount every month till he depleted his account.)

"EPF does not convert assets into units unlike mutual funds."

Assets of a mutual fund are not simply converted into "units" held by the account-holders. The assets are priced to give the Net Asset Value per Unit.

The value of your holdings in mutual funds are calculated as follows: Units x NAV/unit.

EPF is considered a fixed priced fund, as like ASB fund; with the value of each unit fixed at RM1.00.

In EPF, since each unit is fixed at RM1.00, your value of your holdings is the total amount in ringgit in your accounts.

"EPF will have no choice but to realise its investments immediately to provide for such liquidity."
Well, you would have to read post #5435 long article for the complete argument... "There are some unfounded fears that EPF may have no choice but to start selling their investments in the market. This column begs to differ from this argument...

"The introduction to I-sinar, by its original intention is a good one to help those really suffering now."
Yes, i-sinar is now enlarged by removing previous conditions. It was actually an economic stimulus in disguise.

Similar thoughts were voiced by Treasury Secretary Janet Yellen, in her recent push for covid relief.

“I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run,” she added, repeating a phrase she has frequently used to argue for a larger stimulus.

We have discussed this before... tiered dividend was found not workable. And the data was only the data on the number of members
in each level.

Without looking at the demographic of the members, the amount each member has in EPF does not relate at all to his financial means.

By demographic, I meant the member’s age, race/nationality and occupation and monthly wages.

There is no valid reason to give the member a preferable higher dividend because he has a lower amount of savings:

- If the member has just joined the workforce recently.
- If the member has stopped monthly contributions because he is now working abroad.
- If the member choose not to make monthly contributions because he is now running his own small business.
- If the member is a non-citizen.

This one sentence is good enough reason to skip reading the other posts on CPF.

EPF member at age 55 can withdraw any amount he likes... all of it at once or in a fixed amount every month till he depleted his account.

All members must stand united to prevent EPF from ever changing the above withrawal rule at age 55... no matter what the retirement age is in future... 60, 62, 70 or 75.

As long as this rule is always at age 55, EPF is always better than CPF.

30% of all EPF members or 30% of those who make i-sinar* withdrawals?

Anyway, it just means that they have less than RM10,000 in their Account 1. It does not make a hell lot of difference as it is not a significant amount as savings for retirement.

If they are young and just started working in recent years, the RM10,000 will be replenished in a few years time.

If they are in their forties, they could be working in the informal sector and were doing self contributions. If they think it is necessary to make a withdrawal now rather than at age 55, it is their judgement to do so, just as it is their prerogative in making the self contributions.

(When they made the self contributions, they did not foresee the pandemic and hard times that could prolong more than 12 months. Most folks would have thought that savings of 6 months’ expenses would be adequate.)

If they are in their fifties, it does not make a huge difference in their retirement plan whether they make the withdrawal now or a few years later. If they have less than RM10,000, they don’t really have any retirement plan, they would be working till well after the official retirement age.

========

*i-sinar withdrawals:
- a) if you have more than 100k in your Account 1, you can withdraw uo to 10% of Account 1. (Capped at 60k max.)
- b) if you have less than 100k, you can withdraw up to 10k.
- the withdrawals spread over 6 months.
- Future contributions will be 100% into Account 1 till it replenished back to its previous balance in Account 1, before reverting back to the normal 70%/30% split into Account 1 & 2.

=======

At a low wage of RM1200/month, and the contributions (from both employer and employee) at 23% of the monthly wage, a withdrawal of about RM10,000 would be replenished in about 3 years.



This post has been edited by j.passing.by: Mar 1 2021, 06:03 AM

Why bother to share incoherent nonsense?

The writer don't even looked at the bigger picture and question who are the members having so little in their EPF accounts.

If they are non citizens ie. foreign workers, or those employees in the informal sector whose employers don't contribute to epf and are making irregular self contributions, should they have bonus dividends?

A housewife can also open account with epf and put in irregular self contributions, should she enjoys better rates over other members because she has lesser savings?

The tiered rate was a myth started by Najib to counter arguments against special withdrawals in i-lestari and i-sinar... a simplistic one-off manner to quickly replenish account 1 back to its previous balance before the special withdrawals.

I think you have a patronizing attitude alike Singapore's authoritarian government.

It were those people who likes to patronize others and those who think others are foolish in managing their own affairs that will turn EPF to having annuities like CPF.

Thank goodness that blue collar workers represent a major portion of epf members. They are the ones I could count on to respond to any 'brilliant' idea of going towards annuities.

I doubt it has any negative impact... possibly on the positive side.

- i-sinar withdrawals are spread over 6 months.
- withdrawals on Account 2 for buying houses may have drop slightly... people holding off making big purchases.
- withdrawals on Account 55 may drop too... retirees just staying at home, no oversea holidays this year, house renovations delayed, no point getting a new car and nowhere to go.
- cash inflows every month, about 23% of wages from every salarymen in the nation, could match the i-sinar withdrawals.

- EPF would have lesser investment fund to generate higher returns... but on the other hand, i-sinar withdrawals would stimulate the economy as more business sectors reopen in the coming months.

- "Lesser investment fund to generate higher returns" also means lesser cash on hand, as i-sinar withdrawals transfer the cash out. Same realised profit / Lesser fund = Higher ROI per ringgit.

- Growth in the economy would be reflected in the bursa. Market up, realised profits up. Dividends up.

- Could possibly be better than 5.20%.

5b or so is a paltry sum compared to the hundreds and hundreds billions in total invested value epf is holding.

And they have 250 professional staff to crunch the numbers and check where to cash out 1% or so from somewhere, from some (or many) equities, without lowering the share prices.

(If the share price goes up, may possibly have same roi as if the holdings in the equity was not trimmed.)

Bottom-line remains the same, money withdrawn from cash reserves... lesser cash reserves, aka lesser fund...

===> Same realised profit / Lesser fund = Higher ROI per ringgit.

Regarding withdrawing from EPF to invest into unit trust funds, don't forget that in EPF-MIS (member investment scheme), members can only withdraw from account 1 if he has excess amount above his "basic savings" according to his age.

And only up to 30% of the excess amount is allowed. And he can only make a withdrawal once every 3 months.

And lastly, if he redeems the unit trust funds he purchased at any time (if before age 55), the redeemed money reverts back to his account 1 in EPF.

The EPF-MIS is for members who have above average savings and wishes to seek better returns on a small portion of his entire savings in EPF.

Please don't mistakenly think and talk as if the member can drain all his savings in EPF into buying unit trust funds.

Unless of course he is 55 and above, then technically there is no Account 1 and Account 2 since both these accounts are combined and transferred into Account 55.

A better way to pay less personal income tax (for us tah kung chai employees), is by repackaging your salary such that the employer's contribution is more than the usual percentage in your industry. Because employers' contributions are non-taxable income.

Not sure if there are any changes, the employer's contribution in managerial and supervisory staff working in plantations (rubber and palm oil estates) used to be 15%, and it is 18% in banks. If not mistaken, the max allowed is 19% of your wages.

This post has been edited by j.passing.by: Mar 17 2021, 02:50 PM

All my personal encounters with epf so far were always positive.

The i-Sinar online withdrawal request was easy and quick. Requested 2 days ago on the last day, June 30th; 5k transferred into bank account today.

Next special withdrawal, i-Citra, application opens 15-July till 30-Sept.

Sorry, no idea at all whether it is okay or not to buy some shares in the bursa.

I would be more cautious as the economy could go into a depression in the coming months and could take several more years to recover. Don't forget that those listed companies are big companies, not the unlisted small companies and family businesses that could recover and turn around very quickly once the pandemic is over.

You will need to ask your accountant friends how the companies will be charging the profits made in the next several years back to the bad years. Similarly, would you expect any bonuses at the end of the year and next year?

The special withdrawals were for urgent financial needs; especially to those who previously thought their emergency fund was adequate and could last at least 6 months if they are jobless and will be employed again fairly soon.

(See also the 3 good replies above.)

My take... the best investment right now is your job. Zero capital, steady monthly returns.

I would pay more attention to it than spending time on any other investment that could generate negative returns.

Yes, I am conservative and lazy in investments too.

I look at EPF as sound long term investment vehicle which gives solid returns every year. Don't have to analyse too much... just invest a huge portion of my salary into EPF every month by means of employer and employee contributions.

With small capital, say 5 or 10k... you need to turn it over again and again to generate a significantly huge amount of money... say 20-30k... which is about 300% returns in the next several weeks or months. To do this you would have to day trade... which takes your time and attention from your bread and butter job.

The worse case senario could be that you sucks at trading in the bursa and lost money; and you lost your job too because you slack off due to spending too much time and effort monitoring the stock market and the management notices it.

Why I think it has to be a significant return in a matter of weeks? Because I am a lazy investor!

If it took a year to make 20-30k, then it is not significant enough - as the annual dividend from EPF will generate that amount (or part of that amount) by just doing nothing.

Be careful there... there's a saying, something about getting screwed not by the unexpected, but usually it is by what you expected to happen and it did not happen.

10-30% returns in 3-5 years is chicken feed... might as well leave the money in EPF.

Lastly, EPF itself is a sound and good long term investment vehicle. (This my 2 cents opinion... which may not be agreeable by others.)

You don't divert investment money out of it to another long term investment vehicle. Any long term plan should be to complement it by using money out of your wallet.

If you don't have money out of your wallet (ie. no savings from your monthly salary), it would be wise to put some thoughts into your overall financial situation, rather than thinking of ways of getting "easy money"... (waiting for durian runtuh which might or might not happen).