For EPF to generate a 6% dividend for 2022 is tough but not impossible. If the EPF either books a record-breaking fourth quarter or chooses to take profit on more investments in the last three months of 2022, then it may meet the dividend target. The country’s 15.6 million Employees Provident Fund (EPF) members — 8.26 million of whom are still actively contributing to the fund — should receive at least a 5% dividend for 2022.
While the odds of dividends being above 5% had improved from end-June, it is highly likely that 2022 dividends would come in below the 6.1% announced for conventional savings and 5.65% announced for shariah savings in 2021.
Even a 5.5% dividend would require a significantly higher retrun from equities for 4Q2022. Though lower year on year, a 5.5% dividend for conventional savings would still deserve praise in the current environment — being above 5.2% in 2020 and 5.45% in 2019. Dividend for shariah savings was 4.9% in 2020 and 5% in 2019. EPF dividend was last below 5% in 2008, on the back of the global financial crisis (see Chart 1).
There is still a chance for the EPF to see a repeat of the once-in-20-years negative net contribution of 2021 (gross contribution less than gross withdrawals) for the full year of 2022 — though the size of net withdrawals for 2022 should be only a fraction of the RM58.2 billion recorded in 2021.
In a normal year pre-Covid, the EPF generally saw about RM2 billion more coming in (gross contributions) than what went out (gross withdrawals) in a month.
Net investment income improved to RM12.28 billion in 3Q2022 from RM8.98 billion in 2Q2022 even as gross investment income improved, with write-down of listed equities at only RM36 million in 3Q2022 compared with RM2.15 billion in 2Q2022. In 1Q2022, write-down was RM1.09 billion while net investment income stood at RM14.76 billion.
At RM12.32 billion, gross investment income for 3Q2022 is still about 12% below the five-year quarterly average (see Chart 2).
It is worth noting that quarterly gross investment income for 2Q2022 and 3Q2022 have slipped below the five-year average of about RM14 billion as the EPF netted a smaller income haul from equities.
Contribution from equities to gross investment income may have increased to RM5.49 billion in 3Q2022 from RM4.88 billion in 2Q2022, but it had halved from RM10.46 billion in 1Q2022 and is RM2.5 billion smaller than the quarterly average of RM8 billion for the asset class in the past three years (see Chart 3).
Income contributed by overseas assets has also declined year to date, falling to RM5.28 billion, or 43% of gross investment income, in 3Q2022, from RM5.51 billion, or 49% of gross investment income, in 2Q2022, and RM8.23 billion, or 52% of gross investment income, in 1Q2022.
When the EPF’s quarterly gross investment income hit a record high of RM19.26 billion in 1Q2021, for example, some 74%, or RM14.28 billion, was from equities even though the asset class made up only 44% of total assets as at end-March 2021. A sizeable portion is likely to have come from foreign equities, given that overseas assets generated RM11.15 billion, or 58% of gross investment income, in 1Q2021.
With the RM39.3 billion gross investment income for the first nine months of 2022 being below that of the corresponding period in 2018, 2020 and 2021 (see Chart 4), the pressure for catch-up in 4Q2022 is greater to deliver on expectations of at least 5% dividend from the EPF — even though it only needs to deliver 2.5% dividend per year on savings and beat inflation by 2% on a rolling three-year basis, according to the EPF Act 1991.
There is a chance that the amount the EPF needs to pay every 1% of dividend will be smaller year on year for the first time in at least 20 years, with its assets under management slipping below the RM1 trillion at which it had ended 2020 and 2021. Assets under management were RM961.01 billion as at end-September 2022, slightly above RM957.25 billion as at end-June 2022 — both periods had 36% in foreign assets.
It remains to be seen whether the EPF’s fund size can end 2022 above RM1 trillion, but it is only a matter of time before it regains ground. If nothing else, there should be no more Covid-19-related withdrawals: The EPF saw RM14.55 billion withdrawn in 2020, RM86.2 billion in 2021 and RM44.6 billion in 1H2022 — excluding money that did not go into the retirement kitty, as statutory contribution rates were cut during the pandemic.
Seizing the right investment opportunities should help the EPF’s performance rebound stronger, should 2022 turn out to be a blip.
Going by the past 18 years, the EPF could announce 2022 dividends as early as end-January or as late as mid-March but is more likely to do so in the second or third week of February as in pre-Covid years. Hopefully, it will be above 6%!
Reference:
The state of the nation: EPF needs superb 4Q to deliver 6% dividend for 2022, Cindy Yeap, The Edge Malaysia, 19 December 2022
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