Power Point EPF

8/3/2019 Power Point EPF

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EMPLOYEES PROVIDENT FUND 1

EMPLOYEES PROVIDENT FUND (EPF)

MALAYSIA :Governance, Investment & Risk Management

by

R. VIJAYA KUMAR

Head, Strategic Planning Department

Employees Provident Fund

APEC Workshop on Meeting The Challenges of Ageing

Society, Shanghai, China.

October 16-17, 2007


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SIZE

IMPACT

PUBLIC

SCRUTINY

EPF members - 11.36 million

Malaysian population - 27 million

EPFs assets 2006 - USD 83.16 billion

Real GDP 2006 - USD 79.57 billion

Economy/Society/Labour Markets /Savingsand Consumption Level

Trustee/Ownership

QuickTake on EPF (end 2006)

Note: USD 1 = RM 3.49


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PRESENTATION ROADMAP

Background

Governance

Investment

Risk Management

Challenges

Way Forward

Questions & Answers


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BACKGROUND

Malaysia in Brief

Population (2005): 26.75 Million

Population Growth Rate: 1.78%

Ethnic Groups Malay 50.4%; Chinese 23.7%; Indigenous 11%;Indian 7.1%; Others 7.8%

GDP (2006) : USD 308.8 BillionGDP Growth Rate: 5.5%

Percapita Income: USD 2,700.00

Unemployment Rate(2006):

3.5%

Inflation Rate (2006): 3.8%


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BACKGROUND

Malaysia in Brief

Labour Force: 10.23 million

Mortality Rate: 5.05 death/1,000 population

Life Expectancy (at birth): Male: 71 years

Female: 76 years

Poverty Rate 5.7%Hardcore Poverty Rate: 1.2%


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Benefit Organisation

Retirement Public Service Pension Scheme

Employees Provident Fund (EPF)

Armed Force Provident Fund

EmploymentInjury

Invalidity

Social Security Organisation (SOCSO)

Social Assistance Social Welfare Department

Health Care Ministry of HealthOthers Workmen Compensation Scheme 1952

Employment Act 1955

BACKGROUND

Social Security System in Malaysia: Social Security Benefits


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BACKGROUND

EPFs Vision, Mission and Values

Mission:

Provide retirement benefits to members; convenientsystem to employers; challenging working environmentto employees and socio-economic development to the

nation

Vision:

To be a leading social security organization in the world

and the best government agency in Malaysia

Integrity

CustomerFirst

ContinuousImprovement

Teamwork



The EPF was established on 1 October 1951.

It is governed by the EPF Act 1991.

The EPF is a national compulsory savings scheme.

It provides retirement benefits for the private sector and non-

pensionable public sector employees.

The employees and their employers pay monthly contributions

to the Fund and the contributions are then credited into the

individual members account to which interest or dividend is

added annually.

Employeescontributions

+ =+ RETIREMENTSAVINGSEmployerscontributions

DividendPre-

RetirementWithdrawals

- =

BACKGROUND

History



To receive and recover contributions.

To maintain members and employers accounts.

To invest the funds.

To return the savings to members through the

various withdrawal options.

BACKGROUND

Main Functions


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BACKGROUND

Membership Growth, No. of Active Members & Employer Growth

Year No. of Members(million)

No. of ActiveMembers (million) No. of Employers

2006 11.36 5.39 409,911

2005 11.05 5.23 394,359

2004 10.71 5.07 372,741

2003 10.42 4.91 3552262000 9.97 5.04 318,218

1990 5.94 2.94 174,289

1980 3.76 2.82 109,658

1970 1.96 1.57 58,000

1960 1.14 1.03 15,874

1952 0.52 0.50 11,918


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BACKGROUND

Investment & Assets

Year Cumulative

Investments(RM Million)

Annual Gross Income(RM Million)

Cumulative Assets(RM Million)

6/2007 306,410

2006 285,451 13,299 290,255

2005 253,968 12,773 263,865

2004 237,106 11,758 240,362

2003 217,051 11,046 220,161

2000 179,047 10,542 181,518

1990 45,642 3,259 46,680

1980 9,261 637 9,481

1970 2,193 119 2,240

1960 629 31 633

1952 17 0 28


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7,124

9,991

21,968

12,72711,501

13,403 13,42315,083

16,84718,172

20,143

21,860

25,251

27,952

15,121

20,056

0

5,000

10,000

15,000

20,000

25,000

30,000

1999 2000 2001 2002 2003 2004 2005 2006

WITHDRAWAL CONTRIBUTION

(RM Million)

BACKGROUND

Contribution & Withdrawal (Annual)


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Compulsory

- All private sector employees.

- Public sector employees(prior to be placed on pensionscheme and those who have opted for EPFs scheme).

Voluntary- Self - employed

- Domestic helpers

- Public sector employees

- Foreign workers

BACKGROUND

Coverage


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Self employed persons can elect to contribute between RM 50.00 and RM 5000.00 per month.

BACKGROUND

Contribution Rate

YEAR

Percentage

EMPLOYEE EMPLOYER TOTAL

Jun 2004 - present 11 12 23

Jun 2003 May 2004 9 12 21

Apr 2002 - May 2003 11 12 23

Apr 2001 - Mar 2002 9 12 21

Jan 1996 - Mar 2001 11 12 23

Jan 1993 - Dec 1995 10 12 22

Dec 1980 - Dec 1992 9 11 20

July 1975 - Nov 1980 6 7 13

1952 - Jun 1975 5 5 10


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Account 1(60% of savings)





Before1 Jan 2007

From1 Jan 2007

BACKGROUND

Structure of Members Account


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1. Retirement withdrawals

On attaining age 55 years a member can choose to do any

of the following :

withdraw total savings in lump sum,

withdraw total savings monthly, or

part of the savings in lump sum and the balance on amonthly basis.

BACKGROUND

Benefit & Withdrawal

2. Other full withdrawals

A member can withdraw all the savings:

When a member is permanently incapacitated.

Members nominee/next-of-kin can withdraw upon membersdeath.

When a members leaves the country permanently (revokeshis/her Malaysian citizenship).


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3. Pre-retirement withdrawals

A member can withdraw part of the savings: To purchase/build and to reduce housing-mortgage loan. On attaining 50 years of age. For health care and.

For education of members and members children.

4. Members Investment Scheme

Members who have savings of at least RM 55,000 in Account

I can invest 20% of the savings in excess of RM 50,000through approved external fund managers.

The investment can be made at intervals of 3 months.

BACKGROUND



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5. Additional benefits:

Death Benefit of RM2,500 is paid to the next-of-kin upon amembers death.

Incapacitation Benefit of RM5,000 is paid to a member uponIncapacitation.

(Provided the member has not attained age 55).

BACKGROUND



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Employees share of EPFcontributions together with lifeinsurance premium of up toRM6,000 is tax deductible.

Employers share of EPFcontributions of up to 19% is tax

deductible.

EPFs returns on investments are

not taxed.

All pre-retirement and retirementwithdrawals are not taxed.

BACKGROUND

Tax Incentive


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Background

Governance

Investment

Risk Management

Challenges

Way Forward

Questions & Answers


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MANAGEMENT

MINISTRY OFFINANCE

BOARD INVESTMENTPANEL

GOVERNANCE

Governance Structure


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The EPF Board is a statutory body under the Ministry ofFinance.

The Board formulates policies and guidelines and ensurestheir implementation.The Board comprises :

- Chairman- Deputy Chairman- 5 representatives of the government (inclusive of theDeputy Chairman)- 5 representatives of the employees

- 5 representatives of the employers- 3 professionals- Chief Executive Officer (ex-officio)

GOVERNANCE

EPF Board


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Audit Committee

Finance and Development Committee

Establishment, Appointment and Service Committee

Disciplinary Committee

Risk Management Committee

Performance Management Committee

Promotion Committee

GOVERNANCE

Board Committees


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The Investment Panel is responsible for the investment of

the funds.

The Panel consists of :

- Chairman

- 1 representative of the Ministry of Finance

- 1 representative of the Central Bank

- 3 experts in finance and investment

- Chief Executive Officer (ex-officio)

Members of the Board and Investment Panel are

appointed by the Minister of Finance.

GOVERNANCE

Investment Panel

LEGAL DEPT


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GOVERNANCE

Management

Structure

CEO

ENFORCEMENT DEPT.

OPERATIONDIVISION

LEGAL DEPT.

PROPERTY DEPT.

PROCUREMENT DEPT.

SERVICESDIVISION

WITHDRAWAL DEPT.

CONTRIBUTION DEPT.

BRANCH NETWORK DEPT.

IT DEPT.

FINANCE DEPT.

STRATEGIC PLANNING DEPT.

ORG. DEVDIVISION

INVESTMENTDIVISION RESEARCH & SUPERVISION INVT DEPT.

OPERATION INVT DEPT.

RISK MANAGEMENT DEPT.

HUMAN RESOURCE DEPT.

EPF TRAINING INSTITUTE

INTERNAL AUDIT DEPT.

EQUITY INVT DEPT.

Board AuditCommittee

Board RiskCommittee


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The EPF is the single largest institutional investor inMalaysia.

EPF has ensured that the companies in which it hasinvested practice good Corporate Governance (CG):

Establishing the Minority Shareholder WatchdogGroup

Setting-up within EPF a dedicated unit to engage andmonitor public-listed companies on CG issues :

to attend and exercise proxy voting in companies AGM

and EGM. to collaborate with other institutional shareholders on CG

issues detrimental to institutional shareholders.

CORPORATE GOVERNANCE


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Whilst advocating CG in companies the EPF invests, itis also crucial for the EPF itself to practice good CG.

Good CG practices will ensure integrity, optimalperformance and instill confidence of our stakeholdersin EPF.

In EPF, we have adopted CG practices as one of the keyperformance measures in our Balanced Scorecard.

We have designed a CG Index to measure and monitorthe implementation of good CG practices.



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Corporate Governance Measure- CG Index

The key components of the CG Index: Transparency

Independence

Accountability

Focus

Risk Management Regulatory Compliance

Fairness

Social Awareness

Responsibility

Environmental Responsibility


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1. Dissemination of Annual Statement of Accounts toMembers

2. Tabling of Annual Report in Parliament

3. Advertising Annual Report in the News Papers

4. Advertising Quarterly Performance Reports in the NewsPapers

5. Dialogue Sessions with Companies that the EPF holdsSubstantial Stocks

CORPORATE COVERNANCE

STAKEHOLDERS COMMUNICATIONS


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Background

Governance

Investment

Risk Management

Challenges

Way Forward

Questions & Answers


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1. The Board may subject to subsection 18 (2) of the EPF Act 1991

invest moneys belonging to the Fund in the following manner:

(a) To be deposited in:

Central Bank of Malaysia;

Bank licensed under the Banking and Financial Institutions

Act 1989 (Act 372);

Any other financial intuition duly licensed under the Banking

and Financial Institutions Act 1989 and approved by theMinister;

INVESTMENT

The Power of Board to Invest


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INVESTMENT


(b) To be invested in:

Shares of any public company listed on the stockexchange established in Malaysia;

Debentures of any public company

(c) To be invested in:

Malaysian Government Securities (MGS), bonds, mortgagepapers, commercial notes, bankers acceptances, money

market papers, private debt securities, and promissorynotes.

(d) To provide loans to Federal or State Government.


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2. The Board with the approval of the Minister may invest the

Funds moneys:

a) Deposited in any bank or financial institution established

by or under written law;

b) Joint venture;

c) Privatization programme;

d) provide loans to any company incorporated under the

Companies Act 1965;

e) Investment outside Malaysia

INVESTMENT



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YEAR

24.5531.19 41.23

53.22

72.67

98.72

132.4

163.8

186.9

222.2

265.2

290.3

0

50

100

150

200

250

300

350

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2006

INVESTMENT

Growth of Asset from Year 19852006 (in Ringgit Malaysia)

RM(million)


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INVESTMENT

Asset Allocation

Money Market

Instruments 4%

Loans & Bonds 9%Equity 3%

MGS &Equivalent

84%

6/2007: USD90.34 billion

Private Equity

0.05%

Internal Equity(International)

1.1%

Loans/bond28.8%

Money MarketInstruments 4%

Fixed IncomeManagers 2%

Internal Equity(Domestic) 16.7%

MGS &Equivalent 39.5%

Equity ExternalManagers

(Domestic) 3.1%1985: USD 7.53 billion

Over the years, EPF has expanded its investments from traditionalassets being Government Bonds to risky assets..


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INVESTMENT

Managed In-House & Outsourced

6/2007: USD90.34 billion

Private Equity

0.05%

Internal Equity

(International) 1.1%

Loans/bond28.8%

Money MarketInstruments 4%

Fixed IncomeManagers 2%

Internal Equity(Domestic) 16.7%

MGS &

Equivalent 39.5%

Equity External

Managers(Domestic) 3.1%

Outsourced 5.5%

In House 94.5%


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EPF

BOARD

MINISTRY OF

FINANCE

INVESTMENT

OPERATION

INVESTMENT

Governance

EPF ACT 1991SECTION 18 - provides for theestablishment of the InvestmentPanel and specifies its membersSECTION 26 - confers powers to

invest

INVESTMENT

PANEL

MANAGEMENT

INVESTMENT

COMMITTEE


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YEAR NOMINAL DIVIDENDRATE INFLATIONRATE REAL DIVIDENDRATE

2006 5.15 3.60 1.55

2005 5.00 3.00 2.00

2004 4.75 1.40 3.35

2003 4.50 1.20 3.30

2002 4.25 1.80 2.45

2001 5.00 1.40 3.60

2000 6.00 1.60 4.40

1999 6.84 3.00 3.84

1998 6.70 5.30 1.40

INVESTMENT

Dividend Rates


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Background

Governance

Investment

Risk Management

Challenges

Way Forward

Questions & Answers


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RISK MANAGEMENT

Enterprise Risk Framework

Strategic Risk

Credit Risk

Operational Risk Regulatory Risk

Market Risk Investment Risk Liquidity Risk

Reputation Risk


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Increase risk awareness at all level of staff in order for them to

effectively perform risk identification, measurement, control and

on-going monitoring.

Enable EPFs BOD to comply with its organisational obligationsand duties of care and diligence in accordance with the Malaysian

Code on Corporate Governance (MICCG).

Accountability, assurance and governance Maintain integrity and

confidence amongst EPFs stakeholders and the public in general.

RISK MANAGEMENT

Risk Management in the EPF


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RISK MANAGEMENT

Risk Management in the EPF

Strengthening EPFs competitive strategy and operationalefficiency to increase long-term stakeholders value.

Safeguarding assets and resources.

Exploitation of opportunities.

Improved planning, performance and effectiveness.

Improved information for decision making.

Minimise unexpected impact on earnings and returns to

Members.

Staff personal well-being.

E l P id t F d


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Employees Provident FundAssurance Framework

Ministry of Finance

Investment Panel Board of Directors

Investment Panel

Risk Committee

Board Risk

ManagementCommittee

Board Audit

Committee

ManagementRisk

Committee

RiskManagement

Department

ManagementOperations

Risk

Committee

InternalAudit

InvestmentRisk

ManagementSection

OperationalRisk

ManagementSection

ExternalAudit


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Board of Directors Provides oversight

Board Risk ManagementCommittee

Approve risk management policies.

Evaluate management of risks.

BigPicture analysis of risk trends.

Senior Management Manage and monitors risk

Executive Committee Special Committee (MORC and MRC) to assist Senior

Management monitors risk.Audit and Compliance Audit Provide independent assurance.

Compliance Provides independent review.

Risk ManagementDepartment

Assist in setting policies and standards that reflectthe risk appetite of the organisation.

Business Units Responsible for owning and managing risk.

Set and implement policy consistent with enterprise-level policy.

RISK MANAGEMENT

Who manages risk?


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Risk scorecardowner

Responsible for risk management in department/stateoffice/branches/section/unit.

To report effectiveness of risk management activities to MORC and/orBRMC.

Risk owner Responsible to manage assigned risk by ensuring effectivenesscontrols and to recommend new Management Action Plans (MAP) tomitigate risk.

Recommend risk rating to Risk Scorecard Owner.

Control owner Responsible to ensure effectiveness of control.

To report on control effectiveness to Risk owner.

ManagementAction Plan (MAP)owner

To ensure MAP is carried out as planned to mitigate risk.

To report on MAP status to risk owner.

Risk Champion Coordinator and risk advisor.

Assist risk scorecard owner and otherowners on risk management.

Individual staff Aware about risk and risk management.

To highlight any new key risks to risk champion and/or risk scorecardowner.

RISK MANAGEMENT

Who manages risk in business units?


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1. Full support from the Board, Investment Panel, CEO and

Management.

2. Committed Risk Champion.

3. Competence and committed consultant.

4. Effective Project Management.

5. Risk Awareness Training and Facilitation Workshop.

6. Computerised System.

7. Organisation culture.

RISK MANAGEMENT

Key Success Factors

ENSURING IMPLEMENTATION AND ACCOUNTABILITY


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ENSURING IMPLEMENTATION AND ACCOUNTABILITY

BALANCED SCORECARD- EPF CORPORATE STRATEGY MAP

CS1:Maximise Value forCustomer

CS2:Practice goodCorporate Governance

F2: Effective CostManagement

P3 : EnhanceStrategicAlliancesP2: Enhanced

Customer/Stakeholder

Communication

P5 :ComplianceTo Risk

ManagementFramework

L2:Enhanced Human Capital

L1Internalisation of corporateculture Performance based Knowledge sharing Customer centric

Continuous innovation

Vision: To be a leading social securityorganisation in the world and the bestgovernment agency in Malaysia

Common Obj

Shared Obj.

FINANCIAL

CU

STOMER/STAKE

HOLD

ER

INTERNALPROCESS

LEARNING&GROWTH

IPLANNEDOUTCOMES

DRIVERS

CS3:Enhance Policyinput on Malaysias

Retirement Scheme

F1: Optimize Return

P4 : EmployerCompliance

P1 :: ContinuousImprovements

and innovations


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Background

Governance

Investment

Risk Management

Challenges

Way Forward

Questions & Answers


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EMPLOYEES PROVIDENT FUND49

1. Adequacy of retirement savings

a) Low savings In 2006, average savings at age 54 for:

Active members RM114,403 (USD 32,780)

Inactive members RM 21,479 (USD 6,154)

Male members RM 129,563 (USD 37,124)

Female members RM 81,483 (USD 23,347)

b) Increase in life expectancy (at birth)

2000 71.3 (M) 75.9 (F)

2006 71.4 (M) 76.0 (F)

2020 75.4 (M) 80.4 (F)

2. Method of withdrawal payments

Lump sum : may use up money in a short period of time.

CHALLENGES


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3. Health-care benefits not available during retirement.

4. Member changing retirement needs.

5. Changing of family support system (members may notget financial assistance from family during retirements).

6. Increasing size of fund.

7. Low interest rate regime.

CHALLENGES


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Background

Governance

Investment

Risk Management

Challenges

Way Forward

Questions & Answers

WAY FORWARD


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Technology Innovation Business Process Reengineering (BPR),

Core System Replacement (CSR), E-

Services & Customer Delivery.

Incremental Innovation On-going benefit and serviceimprovements. (Revamping of the EPF

benefit scheme at administration)

Business Model

Innovation

New EPF Scheme for new members.

New Venture Innovation Multi-pillar approach

Enhance Customer Experience

Adequacy and Coverage of Scheme

Human Capital Development


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Background

Governance

Investment

Risk Management

Challenges

Way Forward

Questions & Answers


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EMPLOYEES PROVIDENT FUND

[email protected]

Documents

Power Point EPF