Historical EPF Dividend Rates: Its Impact on Malaysia Retirement

16 April 2024

Imagine a future where your retirement is not just a distant dream but a reality. This is the steadfast promise of the Employees Provident Fund (EPF) or Kumpulan Wang Simpanan Pekerja (KWSP) in Malaysia—a beacon of financial security and hope for millions of employees navigating their way through their working lives towards a secure retirement. 

Established under the EPF Act 1991, yet tracing its roots back to 1951, the EPF stands as one of the oldest and most reputable retirement funds globally. It serves as a mandatory pension scheme for those in the private sector who lack access to traditional pension benefits, embodying a profound form of social security for Malaysian employees. 

With over 16.07 million members as of December 2023, the EPF's monumental task is not just about managing savings but nurturing the financial futures of its members through astute investments in a spectrum of approved financial instruments. This commitment extends beyond the employees, placing a critical responsibility on employers for accurate contribution calculations and highlighting the fund's foundational importance in Malaysia's socio-economic fabric. 

As we look into EPF’s track record of delivering returns, it has consistently shown solid dividends of 5.95% on average over the last decade. This is thanks to the EPF’s strategic asset allocation which matches its mandate of securing a comfortable retirement for its contributors.

Through this journey, the EPF reaffirms its status as a social security organization primarily focused on providing retirement benefits for private sector and non-pensionable employees, a testament to its enduring legacy and evolving role in securing Malaysia's future.

EPF Historical Rates

The last decade has seen fluctuating yet commendable performance from the EPF, with the highest dividend rates recorded in 2017 (6.9%) and 2014 (6.75%), attributed to favorable market conditions. Despite the impact of global and domestic market uncertainties on investment returns, EPF is still able to generate returns above 5.0% for the past decade.

YearSyariah DividendConventional Dividend
10-year Average EPF Dividend5.43%5.95%

How EPF Generates Good Returns

At its core, the EPF stewards the savings of its members by channeling them into a broad and diversified investment portfolio. This includes equities, bonds, money market instruments, and real estate and infrastructure, both within Malaysia and internationally. 

This strategic diversification has empowered the EPF to consistently deliver dividend rates surpassing the statutory minimum of 2.5% annually, a record it has maintained with rates above 5% yearly since 2009, demonstrating resilience and strategic investment acumen.

To manage this diverse investment portfolio, the EPF is structured into several specialized departments, each with a specific focus to ensure optimal returns and capital preservation:

  • Investment Division: Oversees the broad strategy for capital preservation and enhancing member contributions' value.
  • Treasury Department: Manages cash assets and fixed income investments, including foreign exchange and risk hedging.
  • Real Estate Investment Department: Handles domestic and international real estate investments for asset optimization and responsible investing.
  • Equity Department: Focuses on domestic and global equity investments, aiming to optimize returns through strategic management.
  • Private Equity & Infrastructure Department: Sources and executes investments in private equity and infrastructure sectors.
  • Capital Market Department: Manages fixed income mandates and trading of securities, focusing on comprehensive solutions and return optimization.
  • External Fund Managers Department: Supervises external fund managers to leverage diversification and optimize investment returns.
  • Strategic Investment and Research Department: Engages in managing strategic investments and providing research to support investment decisions.
  • Investment Strategy and Analytics Department: Aligns investment strategies with asset and liability management to optimize returns and meet liabilities.

Through these focused departments, the EPF ensures a balanced and prudent investment approach, leveraging both internal and external expertise to maximize returns while managing risks, thus securing the financial futures of its members.

How EPF Dividend is Calculated

Navigating the intricacies of personal finance can often seem daunting, but understanding how your retirement savings grow through the Employees Provident Fund (EPF) dividends need not be a perplexing endeavor. 

With an interest rate solidified at 5.50% for the current year, let's demystify the calculation process. Here, we shall break down the method used to calculate the dividends on an initial savings balance of RM100,000, with consistent monthly contributions of RM1,000:

  • Opening Balance: RM100,000 × 5.50% × 12/12 months = RM5,500.00
  • January Contribution: RM1,000 × 5.50% × 11/12 months = RM55.00
  • February Contribution: RM1,000 × 5.50% × 10/12 months = RM50.42
  • March Contribution: RM1,000 × 5.50% × 9/12 months = RM45.83
  • April Contribution: RM1,000 × 5.50% × 8/12 months = RM41.25
  • May Contribution: RM1,000 × 5.50% × 7/12 months = RM36.67
  • June Contribution: RM1,000 × 5.50% × 6/12 months = RM32.08
  • July Contribution: RM1,000 × 5.50% × 5/12 months = RM27.50
  • August Contribution: RM1,000 × 5.50% × 4/12 months = RM22.92
  • September Contribution: RM1,000 × 5.50% × 3/12 months = RM18.33
  • October Contribution: RM1,000 × 5.50% × 2/12 months = RM13.75
  • November Contribution: RM1,000 × 5.50% × 1/12 months = RM9.17
  • December Contribution: RM1,000 × 5.50% × 0/12 months = RM0.00

The total dividend earned for the year 2023 would be RM5,857.50.

How Much is Needed to Retire in Malaysia

The EPF has shed light on the question that looms large in the minds of many working Malaysians: "How much do I need for retirement?" According to their advisory service, a comfortable retirement in Malaysia's major cities now requires a nest egg of at least RM600,000! This benchmark is based on an estimated monthly expenditure of RM2,450 for basic necessities in urban areas like Kuala Lumpur, and it takes into consideration a projected lifespan extending to 80 years. 

The amount needed is tailored to address the rising cost of living and ensures that retirees can maintain a reasonable standard of living. With the economic landscape and individual lifestyles varying significantly, EPF advises members to start saving early and to adopt a diversified investment strategy to build their retirement fund.

Should You Invest More in EPF?

With the EPF voluntary contribution ceiling raised to RM100,000 from RM60,000, you're presented with an intriguing opportunity to amplify your retirement savings. This initiative elevates the EPF from a fundamental retirement savings mechanism to an investment platform that can rival traditional investment avenues. 

Given the consistent dividend yields, which have been competitive with market rates, should you consider boosting your EPF investment? Reflecting on the EPF's dividend track record and the potential for stable returns, increasing your contributions could indeed be a strategic element of your long-term financial planning. 

It's crucial to balance this with your overall investment portfolio and risk appetite. If you're contemplating whether to allocate more funds to your EPF, it's advisable to utilize the free financial consultation services offered by EPF to aid in making an informed decision. 

Other safe investment methods to accumulate wealth

As you build your financial portfolio, considering a mix of investment options can lead to a more secure and diversified approach to wealth accumulation. Here are some safe investment avenues you might want to explore alongside your EPF contributions:

Cash Management Accounts

Cash management accounts offer a sophisticated blend of accessibility and efficiency, serving as a beacon for investors drawn to the allure of higher liquidity coupled with the prospect of yields surpassing traditional banking methods. These accounts, by harnessing the potential of money market funds, present a safe haven for your capital, promising returns that often eclipse those of standard fixed deposits. 

The hallmark of Cash Management Accounts lies in their flexibility, allowing for penalty-free withdrawals, thus providing investors with a seamless blend of security and accessibility. 

A standout example of such innovation is the StashAway Simple, engineered to cater to investors seeking to diversify their savings strategy, offering an impressive yield of 3.6% p.a. This yield is particularly appealing in a landscape where traditional savings avenues struggle to offer comparable returns, making it a noteworthy option for those aiming to optimize their investment allocations.

Fixed Deposits

Fixed deposits stand as a cornerstone in the edifice of conservative investment strategies, offering a safe and predictable pathway to wealth accumulation, offering return up to 3.5% p.a. or more. In Malaysia, fixed deposits are favored by investors for their guaranteed returns and the security of being backed by reputable financial institutions. You can find out more about the best fixed deposit rates in Malaysia in our comprehensive guide.

Unlike the volatile stock market, the interest rates on fixed deposits are fixed for the term of the deposit, providing a shield against economic fluctuations. This predictability makes fixed deposits an attractive option for those who seek to preserve their capital while earning a steady income. 

The allure of fixed deposits in Malaysia also lies in their flexibility, with terms ranging from one month to several years, allowing investors to choose a duration that best suits their financial goals and liquidity needs. The interest rate typically increases with the length of the term, incentivizing longer commitments of funds. 

Dividend Stocks

Dividend stocks represent a compelling avenue for investors seeking both stability and a steady income stream, with some of the companies offering dividend yields up to 11% or more. These stocks belong to companies that regularly distribute a portion of their earnings to shareholders, offering a dual benefit: the potential for capital appreciation and the receipt of periodic dividends. 

However, it is also crucial for investors to understand the inconsistency of dividend payouts, as they depend heavily on market conditions, as well as the revenue and profit of a company. This variability means that while dividend stocks can be a lucrative part of an investment portfolio, their performance is not guaranteed. 

Investors should conduct thorough research or consult with financial advisors to assess the viability of dividend stocks based on current market trends, company performance, and future growth prospects. By doing so, investors can make informed decisions and select stocks that align with their financial goals and risk tolerance.

Investing in dividend stocks in Malaysia requires a strategic approach, focusing on companies with robust financials, a strong track record of profitability, and a history of steady or increasing dividend payouts. Sectors such as banking, utilities, and telecommunications are traditionally known for offering dividend stocks with attractive yields.

Amanah Saham Nasional Berhad (ASNB)

Amanah Saham Nasional Berhad (ASNB), under Permodalan Nasional Berhad (PNB), offers accessible unit trusts like Amanah Saham Bumiputera 2 (ASB2) and Amanah Saham Malaysia (ASM), making wealth accumulation achievable for all Malaysians. 

With their 2023 returns standing at 5% for ASB2 and 4.5% for ASM, these fixed-price funds highlight ASNB's role in providing stable and competitive investment options. Managed by professional fund managers, ASNB unit trusts allow investors to diversify their portfolios across equities, bonds, and money markets without the need for direct involvement in day-to-day investment decisions. 

This blend of accessibility, affordability, and professional management makes ASNB a valuable component of a balanced investment strategy.

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