‘Saving is the gap between your ego and your income.’
– Morgan Housel, former columnist at The Wall Street Journal
Three months after graduation, I had a distinct privilege of joining a group of esteemed economic analysts who were deployed to the Employees Provident Fund (EPF) headquarters at Jalan Raja Laut, Kuala Lumpur as part of an initiative led by the Ministry of Finance.
Through this experience, I can attest to the world-class status, exceptional expertise and professionalism of the analysts and the EPF as a whole. The EPF’s impressive track record of delivering superior returns every year is a testament to its top-level performances. So whenever someone asks me where they should put their money, my top three recommendations always include the EPF.
The rationale is on two very simple grounds, Section 27 of EPF Act 1991 and it is a core institution of the government.
That is of course until politicians started allowing a series of special withdrawal schemes in the past two years under the guise of the COVID-19 pandemic and economic shutdown.
Thus the sacred Account 1 and Account 2 are no longer sacred, and the issue of withdrawals has become a permanent fixture of debates within and outside of Parliament.
Politics influence withdrawal rhetoric. “Return the people’s money” is a very captivating mantra for many politicians.
Advocating for populist measures is often a simplistic approach, leading to an alarmingly broad appeal among the masses.
Those who stir the emotions of the Bottom 40 (B40) or even Middle 40 (M40) to pressure the administration of the day to allow special withdrawals are extremely irresponsible.
I would like to know how many of those who are championing withdrawals made withdrawals themselves rather than keeping their savings in the EPF.
After all, statistics have shown that the B40 and M40 members’ total savings in the EPF have shrunk by 70 per cent and 34 per cent respectively while the T20 members’ savings has increased by 9 per cent.
The majority of the members of Parliament are in the T20 category. I can understand the need to emphasise that everyone’s circumstances are different.
Those who had lost their jobs lacked income or faced an emergency would welcome any form of immediate cash injection or relief provided from the withdrawal schemes of the statutory savings.
Sure, some would go as far as to argue that when it comes to matters of survival, there is no room to ponder about the future.
Still, there are always two sides to a coin. It is either short-term pain, long-term gain or vice versa.
I do not deny that there will be segments of the population, especially those who are facing immense hardship that stands to benefit from withdrawals.
However, a large number of contributors would stand to lose out in the long run. My data and statistics which I have been compiling have shown that the EPF can deliver the kind of returns that surpasses Pemodalan Nasional Bhd, Lembaga Tabung Haji, Armed Forces Fund Board, National Higher Education Fund Corp or the Social Security Organisation.
Indeed, each organisation has its mandate and serves a certain purpose but ultimately it all comes down to being a safety net for the people.
In the context of the EPF, its strategic asset allocation scheme and well-diversified portfolio had helped the nation’s population weather the ups and downs of global economic cycles.
Hence, withdrawals will not provide a better future. Conservation and preservation will deliver such results.
The predicament of most people, be they in Malaysia or other developed countries, is having to deal with inflation.
Over a long period, we have seen intermittent recessions that hit the economic cycles but none longer than the Great Depression of the 1930s.
Warren Buffett during the Berkshire Hathaway 2022 Annual General Meeting (AGM) said this about inflation – “Inflation swindles the bond investor, too.
“It swindles the person who keeps their cash under their mattress. It swindles almost everybody.”
That said, one of the best things you can do to preserve your wealth is to rely on the power of compounding. Letting your savings compound annually and consistently across decades is an extremely effective way of nullifying the effects of inflation.
For Malaysians, we are quite lucky that we have an efficient vehicle, namely the EPF.
After taking in the latest 5.35 per cent dividend declared for 2022 by the EPF, the average dividend return per annum for the past decade is 6.05 per cent.
To give you an illustration of the power of compounding, if you were to have RM20,000 in your EPF savings as of 2012, and your annual additional savings in the EPF is RM10,000, at an average return of 6.05 per cent per annum, as at end 2022, your savings with compounded interest would lead to a final tally of close to RM176,097.25.
From a very young age I was taught about the value of hard work and the importance of delayed gratification.
Yet, this is contrary to what is often viralled on social media.
“Yolo – you only live once” appears to be the way of life for most youngsters. There will always be differences.
But what I do know is to have enough to get by to offset the rising cost of living and shrinking purchasing power due to inflation. There are only two ways about it. Either we find ways to increase our incomeS, or we increase our savings.
Thus, allowing early withdrawal from mandatory retirement saving schemes, which deliver an annual return of 6 per cent in the past decade, isn’t the answer to a better life.
In the end, savers will be the ones who enjoy the fruits of their patience and discipline.
Nonetheless, we all come from different circumstances and backgrounds. So, we owe it to ourselves to make a fair decision. Personally, EPF is my safest bet.
