KUALA LUMPUR: Strong policies are needed to rebuild the Employees Provident Fund (EPF) members' savings after a series of withdrawals in the Covid-19 years may have partially led to possible lower dividends for 2022.

The EPF is scheduled to announce the dividends for the conventional and syariah savings today (Saturday), amid expectations that the more than 15.6 million members may not have much to cheer about.

Industry observers said negative growth affecting the majority of global bourses last year might not give a higher return to the EPF than before since about one third of its investments were abroad.

The EPF is expected to deliver a dividend of five to six per cent, the latter figure would be nearly as much as the rate paid out in 2021.

"It looks like the EPF dividend will be lower but it will still be a good return and much better than most low-risk investments or fixed deposits," Malaysia University of Science and Technology economist Dr Geoffrey Williams told NST Business.

"The (expected) lower return is due to the volatile international market, higher interest rates and very poor domestic returns on underperforming Malaysian companies. The dividend in 2021 was probably higher ahead of general election to create a feel-good factor which did not work," he added.

Williams said it might also be the price members had to pay for four major withdrawals involving RM145 billion mainly in 2020 and 2021 to help them cope with the effects of the pandemic.

An EPF withdrawal of up to RM10,000 per member was allowed last year, following the i-Lestari and i-Sinar schemes in 2020, and i-Citra in July 2021.

"Around 15 per cent of the value of the EPF fund was withdrawn so the investment opportunities were smaller and this, of course, has hit the members," he added.

Bank Islam Malaysia Bhd chief economist Firdaos Rosli outlined several measures to help rebuild the markedly reduced EPF savings.

"First, make the average monthly cost of retirement 'cheaper' in the future. This will mean, among others, a sustained low inflation environment throughout the retirement period and low pension payments.

"This option has negative externalities such as low productivity and stagnation in growth over the long term," he said.

He also suggested an increase in the retirement age but shorter retirement years, as well as an increase in the contribution rate.

"The government last raised the defined contribution (DC) rate in 1996, but with intermittent cuts over the years. Raising the present DC rate can be politically challenging even when the economy gets better in time. Wage hikes take time.

"Obviously, these are politically sensitive choices. The government has to bite the bullet and do what is needed to allow EPF contributors to replenish their reduced savings," Firdaos added.

Bank Muamalat Malaysia Bhd head of economics and market analysis Mohd Afzanizam Abdul Rashid said the EPF had done well in promoting voluntary savings especially among the gig workers.

However, Afzanizam said the current level of wages suggested that more needed to be done to elevate the country's growth potential.

"Our workforce is mostly dominated by SPM holders and below, which is about 70 per cent of the total workforce. Therefore, it requires other policies to achieve the common goal for the country, one that will benefit all segments of the society," Afzanizam said.

Williams said there was very little the EPF could do to replace the savings that had been withdrawn.

"The fund has introduced some good initiatives but the truth is that its members have low incomes and cannot save enough to put back what they have withdrawn."

The government, Williams said, could create a Malaysian Superfund by consolidating underutilised or underperforming funds and put this under the EPF to manage as part of its portfolio.

"It could put privatisation proceeds there too, if for example, it privatises part of Petronas. This would more than replace the lost funds and give the EPF a bigger fund to invest. They would get better returns as a result," he added.

On whether the government's RM500 cash injection for each member with savings less than RM10,000 announced in 2023 Budget can help rebuild their savings, Williams said: "The RM500 will do nothing at all to change this situation. It is worth RM2 per month for a normal 20-year retirement period."