Since 2005, annual dividend rates announced by the Employees Provident Fund (EPF) have ranged from 5% to a high of 6.9% in 2017 (with the exception of 4.5% in 2008, when the global financial crisis struck).

       Also, since 1963, the pension fund has delivered dividend rates of 5% and higher, with record highs of 8.5% (1983 to 1987) except in 2002 to 2004 when dividend rates ranged from 4.25% to 4.75%.

       For 2021, the EPF declared a 6.1% dividend for conventional savings and 5.65% dividend for shariah savings.

       As at December 2021, EPF's investment assets had grown 0.8% to RM1.01 trillion (from RM1 trillion in 2020).

       StarBiz spoke with economists and fund managers regarding the sustainability of EPF's stellar dividend rates, the impact of special EPF withdrawals, Malaysia's transition to an ageing nation, and the EPF's aim to have a fully environmental, society and governance (ESG)-compliant portfolio by 2030.

       One of the biggest issues is whether the EPF's stellar dividend track record can be sustained in the medium term, in light of the volatility in global markets due to the Russia-Ukraine conflict.

       Datametrics Research and Information Centre Sdn Bhd managing director Pankaj C. Kumar played down such concerns and said the pension fund has been able to deliver "time and again, over the last 20 years." "Global crises and market volatility will always be there, and EPF has always been able to ride along these waves - the ups and downs.

       "For me, a crisis also creates opportunity. For a long-term investor like EPF, it is challenging to manage a portfolio, and you may see some sort of mark-to-market losses and all that but events like these also provide opportunities to accumulate shares that have come off sharply, such as in the tech sector," he said.

       Meanwhile, Bank Islam Malaysia Bhd (BIMB) chief economist Dr Mohd Afzanizam Abdul Rashid said the pension fund's diversification strategy has served it well.

       "Because of the diversification strategy, EPF should be able to optimise its portfolio returns, and generate reasonable returns with reasonably low risk at the same time," he said.

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       Regarding its investment portfolio in 2021, EPF had stated that its diversification approach as guided by its Strategic Asset Allocation (SAA), kept the pension fund resilient to financial shocks and remained stable in unprecedented situations.

       By asset class, fixed income instruments made up 45% of investments, while equities comprised 44%.

       Real estate and infrastructure as well as money market instruments made up 6% and 5% of EPF assets, respectively.

       The pension fund pointed out that the continued market recovery in 2021, particularly in the developed markets, had provided opportunities for it to realise profits.

       Equities, particularly foreign listed equities, which recorded a return on investment (ROI) of 10.44%, continued to be the driver of returns.

       Total income contributed by equity assets was RM38.93bil, or 58% of the EPF’s total gross income.

       The private equity portfolio also saw strong performance, with an ROI of 19.01%.

       The pension fund said it was able to maintain steady returns, as almost half of its total asset allocation was in fixed income instruments, comprising Malaysian Government Securities (MGS) and equivalents, as well as loans and bonds.

       Income from the portfolio contributed RM19.5bil, or 29% of the EPF’s total gross income.

       Also, the real estate and infrastructure portfolio’s income of RM7.69bil continued to play a role as a hedge against inflation, recording an ROI of 6.53%, a spread of 1.84% above the ROI for fixed income instruments of 4.69%, whereas income from money market instruments came in at RM0.94bil.

       The pension fund also noted that for 2021, its overseas investments had contributed 56% to its overall returns.

       As at December 2021, about 37% of EPF’s investment assets were outside of Malaysia across all asset classes.

       Mohd Afzanizam said a global rising interest rate environment would mean fixed income and money market instruments would "theoretically should do more of the heavy lifting."

       "Lately, we have seen stronger inflows of foreign funds into the Malaysian equities market. Perhaps, in 2022, EPF's domestic portfolio performance may offset any adverse impact from the volatility of the overseas portfolio," he said.

       Mohd Afzanizam also noted that the pension fund's performance in the medium term would depend on "unknown geopolitical risks" that are roiling global markets.

       "The wildcard, the elephant in the room, obviously, is the Russia-Ukraine conflict. There are also worries about potential Western sanctions on companies in China. So, global issues can morph into something more severe, which I hope will not happen," he said.

       Meanwhile, an asset fund manager pointed out that a portfolio's past track record is not a guarantee of future performance, as those who invest in "unit trusts and such" would know from experience.

       "The Ukraine-Russia war has resulted in commodities' price hikes and no one has a crystal ball to see whether and when the conflict is going to be resolved, or if it's going to drag on into something worse.

       "However, in adversity, there's always an opportunity. What EPF fund managers have shown is that they tend to read the markets very well. And EPF has a diversified asset portfolio to mitigate market volatility across asset classes," said the fund manager, who did not want to be named.

       READ ALSO > INTERACTIVE: Concerns about EPF members’ retirement adequacy

       Dr Yeah Kim Leng, professor of economics at Sunway University, said given EPF’s high dependence on its overseas fund performance, the sharp deterioration in global market conditions raises concerns that EPF’s performance will grossly undershoot expectations.

       Yeah added that the prognosis for fund management performance has soured, given the turbulent market conditions and increased challenges facing the global economy despite the strong but uneven recovery experienced in 2021.

       He also noted that global financial markets have been rocked by the Ukraine-Russia War, sanctions on Russia, prolonged supply chain disruptions, inflation fears in advanced economies, and elevated rate hike trajectory and rolling back of quantitative easing measures by the United States Federal Reserve.

       "These shocks have caused widespread ‘risk-off’ sentiments as global investors turned risk averse amidst heightened global uncertainties that are likely to result in downgrading of earnings and economic growth this year," said Yeah.

       UOB Kay Hian Malaysia head of research Vincent Khoo said it may be difficult for EPF to match 2021's stellar dividend payout.

       "2022 will be a generally challenging year for equities even should the Russian-Ukraine conflict find a peaceful resolution, given the United States' contractionary monetary policy which dampens both the equity and fixed income markets," said Khoo.

       READ ALSO > Impact of an ageing society

       Centre for Market Education research fellow Dr Liew Chee Yoong, who is also an assistant professor at UCSI University, said continuous payment of high dividends over time by the EPF may not be sustainable in the long run, given the increasing demand for withdrawals by contributors due to the ageing population as well as due to other potential crises in the future such as pandemics, and natural disasters.

       "If the EPF continuously pays high or stellar dividends, the balance of funds that they have for future investment to generate substantial returns will gradually get smaller over time as the demand for withdrawals gradually increases as the population ages," said Liew.

       However, he noted that the amount of dividend that EPF pays is entirely up to the pension fund's discretion.

       Meanwhile, Dr Geoffrey Williams, an economist and specialist in higher education management and finance at the Malaysia University of Science and Technology, said while forecasting equity markets is extremely difficult and "certainly, there will be very high uncertainty and volatility on the financial markets so long as the conflict in Ukraine continues, EPF managers have proved to be very good at managing risk and returns even over the very volatile Covid-19 period."

       Williams added that while there are no guarantees of any specific return target, it is clear that EPF remains one of the best investments a Malaysian can make and far better than fixed income, or other savings or unit trusts.

       READ ALSO > INTERACTIVE: ESG portfolio target by EPF