EPF Navigates Safely Through Pandemic-Stricken 2020

The Employees Provident Fund (EPF) delivered a solid performance for 2020 in terms of both its operational and financial results, declaring a dividend of 5.20% with a payout amounting to RM42.88 billion for Simpanan Konvensional; and 4.90% for Simpanan Shariah, with a payout amounting RM4.76 billion. Cumulatively, the total payout for 2020 amounts to RM47.64 billion.

With an average five-year real dividend of 4.62% for Simpanan Konvensional and 4.32% for Simpanan Shariah after adjusting for inflation, the EPF has exceeded its strategic target of declaring at least 2.00% real dividend on average for a rolling five-year basis.

The EPF has been successful in posting a strong performance in 2020 despite the once-in-a-lifetime event stemming from the COVID-19 pandemic and the unique circumstances the world found itself in, with the twin health and economic crises.

EPF Chairman Tan Sri Ahmad Badri Mohd Zahir said, “We managed to safeguard our members’ retirement savings well, while meeting their immediate needs to deal with the current challenges. It was not easy at times as we had to walk a tightrope in ensuring that our members survive the difficult times while balancing their future needs.”

“The quick spread of COVID-19 and its transmissibility made it a Black Swan event that many found challenging to manage. However, we were proactive in managing the pandemic and that helped us to ride through the challenges. Our focus on digitalisation enabled us to assist our members more efficiently and seamlessly while ensuring that we remain relevant to members who are more technology-savvy.”

The EPF also rebalanced its investment portfolios based on thorough consideration on how the COVID-19 pandemic and global uncertainties such as the US Presidential election in November 2020, the continuous US-China trade dispute, and the impact of the Brexit negotiations had influenced capital markets worldwide.

EPF’s investment portfolio in 2020

Following lower net contributions during the year, the EPF’s ability to adapt to the current times ensured its investments were able to deliver long term sustainable returns under the new normal. The fund recorded its highest ever gross investment income of RM60.98 billion, with RM6.15 billion allocated to Simpanan Shariah.

The strong performance was due to the prudent approach guided by the Fund’s overall Strategic Asset Allocation (SAA), which has kept the EPF resilient despite the unanticipated crisis. By asset class, Fixed Income instruments made up 46% of investments, while Equities comprised 42%. Real Estate and Infrastructure as well as Money Market instruments made up 5% and 7%, respectively.

“The EPF is a long-term investor and remains steadfast with our diversification programme across asset classes, strategies, managers, markets, countries and currencies. The contribution from the overseas assets was also critical to our performance,” Tan Sri Ahmad Badri explained.

As at December 2020, overall the EPF had 33% of its investment assets outside of Malaysia across all asset classes. Equities, particularly foreign equities, continued to be the driver of returns with a total income of RM28.71 billion. The private equity portfolio also demonstrated strong performance with a consistent income distribution.

While leading stock indices lost as much as 40% in the first quarter, the EPF took the opportunity to rebalance its portfolio by acquiring shares that were fundamentally strong at attractive prices. The recovery in the second half of the year on the back of improved global and domestic markets also contributed significantly to the EPF’s investment portfolios, providing for profit-taking opportunities, particularly in the fourth quarter.

The EPF took prudent measures to write down RM7.71 billion of its listed equity portfolio, to ensure that the Fund’s long-term investment portfolios remain healthy.

During the year, the EPF introduced several withdrawals namely the i-Lestari and i-Sinar facilities, which required a robust liquidity plan. Hence, the Money Market portfolio grew significantly to cater for all the withdrawals. The income from the Money Market portfolio came in at RM1.19 billion.

With almost half of the Fund’s total asset allocation in Fixed Income instruments, comprising Malaysian Government Securities & Equivalent and Loans & Bonds, the EPF was able to maintain stable returns and at the same time captured opportunities to realise profit as interest rates declined. Income from the portfolio came in at RM25.42 billion, or 42% of the Fund’s total gross income.

The Real Estate and Infrastructure portfolio’s income of RM5.66 billion came with its own set of challenges, with lockdown measures and work-from-home resulting in lower income from certain segments of the real estate sector. However, the portfolio overall continued to play a role as a hedge against inflation with a spread of about 50 basis points above Fixed Income instruments.

The EPF’s overall investment assets grew 7.9% to RM998 billion, with the market value hitting RM1.02 trillion at the end of last year. The Fund’s membership base grew by 2% to 14.89 million, while employers registered with the EPF stood at 534,398. It takes RM8.25 billion to pay out every 1% dividend for Simpanan Konvensional and RM972 million for every 1% dividend for Simpanan Shariah in 2020.

EPF’s responses to the difficult times in 2020 – economy, markets, jobs, COVID-19

The EPF was one of the first pension funds in the world to provide assistance to its members during the pandemic, by rolling out the hassle free i-Lestari Account 2 Withdrawal Scheme to provide members with some measure of financial relief. To date, a total of RM18.1 billion has been withdrawn by 5.16 million members under the i-Lestari facility. Other measures included allowing members to lower their mandatory statutory contribution to EPF savings to 7% from 11%, effective April 2020 to December 2020.

The EPF also ensured that employers were able to sustain their costs and continue to retain their employees by offering the Employer COVID-19 Assistance Programme (e-CAP), specifically targeted at small-and-medium enterprises (SMEs). e-CAP allows eligible SMEs flexibility to choose to apply for a deferment and restructuring of the employer’s share of EPF contributions, which benefited 13,090 employers with a cumulative value of RM84.95 million. The programme was introduced to assist SMEs to manage their cash flow as well as help them in fulfilling their obligations of paying for their portion of EPF contributions.

To ensure the safety of our employees and members, the EPF was proactive in quickly adapting to the new reality of “low touch, high distance” service through the introduction of Janji Temu Online (JTO). Through JTO, EPF ensured that social distancing measures and SOPs were strictly observed while the volume of visitors were reduced at physical branches.

Outlook for 2021

Commenting on the outlook for the year, Tan Sri Ahmad Badri said, “The vaccine rollout in 2021 will have important bearings on the outlook for the year, as we are also cognisant of new strains of COVID-19 that are easily transmitted. However, we believe that the situation is being well managed, with governments everywhere ensuring that the vaccines get to people as efficiently as possible while in Malaysia, the first batch of vaccines have arrived and will soon be administered to the population.”

“The EPF, being a 70-year-old institution and one of the oldest pension funds in the world, will remain focused on our mandate to help members have enough savings for a sustainable retirement. We will also embark on a new withdrawal scheme to allow members to purchase insurance or Takaful products that was announced in Budget 2021, slated for an end of year rollout.”

“We are also pleased to share that the EPF is the first institutional investor to establish the largest Shariah-compliant Private Equity co-investments mandate in the world, with the launch of the US$600 million Shariah Private Equity Co-Investment Separate Managed Account. This certainly bodes well for our Simpanan Shariah fund, in which members’ savings balance has crossed the RM100 billion mark and continues to grow sustainably.”

“The COVID-19 pandemic has been a great revealer for all of us, necessitating urgent solutions within a short period of time. As we work towards safeguarding and growing our members’ retirement savings in a volatile and uncertain environment, our emphasis on Environment, Social, and Governance (ESG) investing will serve as an anchor and an effective risk mitigation tool, as well as being value drivers for our investments that will create social impact that could last beyond financial returns,” Tan Sri Ahmad Badri added.

Summary of 2020 Investment Performance

Asset Class	Asset % of total investment asset	Gross Investment Income (RM billion)			As % of income
		Simpanan Konvensional	Simpanan Shariah	Total
Equities	42	25.42	3.29	28.71	47
Fixed Income Instruments*	46	22.93	2.49	25.42	42
Money Market Instruments	7	1.07	0.12	1.19	2
Real Estate & Infrastructure	5	5.41	0.25	5.66	9
Total	100%	54.83	6.15	60.98	100%

EPF’s Dividend chart from 2010 until 2020