Boosting retirement fund
Saturday, 3 October 2015
By: NG BEI SHAN
EPF Member’s Investment Scheme an option to enhance retirement savings
FINANCIAL advisors have stressed the importance of retirement planning as early as possible so that one can live a comfortable life after retirement.
One of the apparent benefits to start early is the effect of compounding and that can make a huge difference in one’s retirement fund.
To achieve that desired outcome, planning is important as everyone may have a different goal.
Understanding the importance of giving its members the options to achieve their goals, the Employees Provident Fund (EPF) has introduced Member’s Investment Scheme (MIS) in November 1996.
What is EPF Member’s Investment Scheme?
This is a voluntary scheme that provides the option for EPF contributors to transfer part of their savings from their Account 1 at EPF to invest through the appointed Fund Management Institution (FMI) under the scheme.
“Members on a voluntary basis and at their own risks may transfer part of their savings from Account 1 into FMI of their choice to optimise the investment of their EPF savings for potentially higher returns, at acceptable level of risks, thus providing them with enhanced savings upon retirement,” EPF quantitative and performance analysis department head Badrul Hisham Dahalan tells StarBizWeek.
Instead of the one fund and one strategy provided by EPF, members have the option to choose the FMIs of their choice to meet their investment goals.
“But first of all, the member should understand his or her risk profile and they have to take the initiatives to understand and monitor their choice of investments,” he says.
Under the scheme, members are only allowed to invest through the 27 FMIs appointed by EPF. That means they cannot invest directly in the market under the scheme.
The types of FMI appointed are unit trust management companies, asset management companies and Lembaga Tabung Haji. A unit trust management company manages the unit trust fund management while an asset Management Company manages private mandate.
The list of appointed FMIs can be found at EPF’s website.
To be noted, fees and charges apply for the services of these FMIs and it can vary from one to another.
Charges include initial service charge, which EPF has capped for FMI to charge members up to 3%.
“Members are urged to read the offering documents issued by the FMI and understand all the costs incurred and risks involves when investing,” says Badrul.
How does EPF safeguard members’ interest?
As the EPF’s vision is to be a world-class social security organisation providing the best retirement savings for Malaysians, safeguarding the integrity of the scheme becomes a priority.
It ensures there will be no leakages in members’ retirement savings by putting in place framework and guidelines governing the FMI. If the FMI is found to have breached the guidelines, it will take stern actions against the FMI.
Depending on the gravity of the breach, it can give warning, fine, suspend or terminate the said FMI.
As part of its supervision over the FMIs, the FMIs are also required to submit reports on a monthly and a quarterly basis or as and when required.
More importantly, EPF will have a yearly evaluation of the funds offered under the scheme. This is done together with the Federation of Investment Managers Malaysia (FIMM), a self-regulatory organisation for the investment management industry that is recognised by the Securities Commission.
Those funds that do not meet the minimum criteria will be suspended until they meet the minimum threshold of the qualifying criteria.
On top of that, EPF will conduct an annual audit on FMI to examine their compliance with the EPF guidelines and operating in the best interest in relation to the scheme.
To be an eligible FMI, the company has to be incorporated in Malaysia, licensed by the Securities Commission, possesses at least three years performance track record and has not adverse record.
FIMM CEO Nazaruddin Othman says the organisation will continue to work closely with EPF for check and balance of the FMIs.
How to start and choose a fund?
Before a member considers participating in the MIS, he or she has to find out whether he or she is qualified to transfer part of the savings in EPF Account 1. A member must have at least RM5,000 of basic savings in his or her Account 1 and must not reach 55 years of age on the date of submission to EPF.
A member can check the account balance at any EPF Smart Kiosk nationwide by using member’s Mykad, refer to latest EPF statement or log in into EPF website (www.kwsp.gov.my) via i-Akaun if a member is a registered i-Akaun user.
A member may invest 20% from the member’s savings in excess of the basic savings amount required in Account 1 (refer to table for age and basic savings required).
The minimum amount of investment under the unit trust mandate is RM1,000 while for the private mandate, it may require a larger sum of money. Investment can be made once every 3 months and through one FMI at a time. Subsequent investment can be made through the same or other approved FMI.
As a rule of thumb, the calculation of the amount of money that can be used to invest under the scheme is as such: (Account 1-basic savings) x 20%.
Once the member fulfils the eligibility, he or she can choose the funds that he or she would like to put the money in.
“There are various funds under the scheme made available for the members to choose from based from their risk profile,” Badrul says.
Of the 336 funds listed under the scheme, 220 funds are qualified to be offered for period 2015/2016.
For unit trust funds, there are equity funds, bond funds, mixed asset funds, money market funds, property trust fund and they are available in conventional or shariah compliant fund to suit the various risk profiles of members.
For private mandate, members may choose to have their investment managed by the eligible asset management companies.
These funds need to achieve a three-year simple average consistent return rating of 2.00, sourced from mutual and hedge fund analytics provider Lipper, which has a scale of 1 to 5.
To help members choose the funds, the EPF has introduced Members Investment Scheme Information Portal on April 2015.
The portal provides information on unit trust funds and FMI appointed under the scheme including the funds status and funds’ performance.
Moreover, members can compare funds under the same category, their board of directors, investment committee, dividend/bonus paid and other information.
“All EPF members with i-Akaun can surf the portal for free. The portal only provides information on unit trust funds to facilitate members’ investment decision making,” he says adding that the portal, which is managed by an independent licensed party, does not serve to promote any unit trust funds or fund management institutions.
His advises members who choose to participate in the scheme to be clearly guided by the fund’s prospectus.
The prospectus is the fund’s selling document and contains valuable information such as the fund’s investment objective or goal, principal strategies for achieving the goals, principal risks of investing in the fund, fees and expenses and past performances. It also identifies the fund’s manager and advisers and describes how to purchase and redeem the fund’s units.
“The member should read and understand the content of the prospectus and if in doubt, always consult a professional financial adviser,” Badrul adds.
Members are not allowed to withdraw any amount from the money invested through the FMI i.e no leakages. In the event of any income distribution or profit deriving from his/her investments under the scheme, it will be reinvested. If the investment is liquidated (redeemed), all amounts including returns from the investment must be credited into the members Account 1 at EPF. There is no mandatory period determine by the EPF for a member to redeem his/her investment under the scheme.
If the appointed FMI is terminated or removed from the list of appointment, the FMI is required to liquidate the EPF member’s investment with them and return the invested amount to member’s account in EPF within the stipulated time and manner as outlined in the guidelines.
EPF will release its control on the invested amount by the FMI when a member reaches age 55 or has made full withdrawal under leaving the country, incapacitation, pensionable employees and death withdrawals. Claims or resale of the invested units will be managed by the member or next-of-kin directly with the FMI.
“We aim to create the awareness of the existence of this option but members can always choose to have their funds managed by EPF. At the end of the day, we hope EPF contributors will have adequate savings for their retirement,” Badrul emphasises.
More than 780,000 members have participated in the scheme and he hopes that the awareness of the scheme increases.
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