Earlier this month, the Employee Provident Fund (EPF) declared a payout 5.5% in dividends to contributing Malaysians for conventional savings and 5.4% for shariah savings.

As a point of comparison, those who parked their money in fixed-deposit accounts would only have earned 2.63% – less than half of what you would have received from EPF.

So, is 5.5% high? Is it low? How does this figure stand historically? Here are 6 takeaways from the EPF payout.

1. Comparison with 2022 and five-year average

The 5.5% dividend yield for last year is slightly higher than 2022’s payout of 5.4%, and in line with the five-year average of 5.7% from 2018 to 2022.

As for shariah savings, the 5.4% yield for 2023 is a significant increase from 4.8% the year prior, and the closest to conventional savings it has ever been.

This would, therefore, be a good time for Muslims and non-Muslims alike to contribute to shariah savings.

2. ‘Real’ return of 2.9% after inflation

They say inflation is a form of taxation. So, even though EPF declared 5.5% and 5.4% respective dividend yields, you need to take into account the “real” return on your EPF savings.

Deducting for inflation, you would have received real dividend returns of 2.9% and 2.5% for conventional savings and syariah savings, respectively, from 2021 to 2023.

For 2023, MyPF has also calculated real returns for conventional savings, which would be 3% after deducting inflation of 2.5%. This is higher than 2022’s real dividend yield of 2.1%.

EPF has said it aimed to provide at least a 2% real dividend yield from 2021 to 2023, and the fund delivered a much higher average real dividend yield of 4.9% from 2017 to 2020.

3. 87% distribution of RM67 bil income in dividends

Last year, EPF made about RM67 billion in investment income – 29% higher than the RM52 billion generated in 2022. And from this RM67 billion, it distributed RM58 billion, or 87%, to Malaysians.

What does EPF do with the 13% it does not distribute? Well, most of this goes into paying for its operations. In 2022, for example, the fund spent about RM4.7 billion in operating expenditure for:

• salaries, allowances, staff costs – RM1.5 billion;
• interest on borrowings – RM1.1 billion;
• fees and professional charges – RM773 million;
• repairs and maintenance – RM221 million.

This knowledge helps you gauge how efficient EPF is in generating profits on your hard-earned savings.

4. Stocks and equities contributed to EPF’s investment income

How was the 5.5% in dividends generated? Most of the investment income would have come from stocks or equities, which contributed RM39 billion or 58% to EPF’s profits.

This is followed by fixed income at RM19 billion (30%), real estate and infrastructure (RM6 billion, 8%), and money market instruments (RM2 billion, 3%).

Stocks provided the highest return on investment at 8.7%, followed by real estate and infrastructure (5%), money market instruments (4.9%), and fixed income (4.4%).

5. Foreign investments provided more returns

Make no mistake, foreign investments yielded higher returns compared with domestic investments. EPF invested about 38% of its money into global investments, which generated income of RM35 billion or 53% of its investment income.

Meanwhile, it had 62% of its funds in the domestic market, which contributed “only” 48% in investment income.

Last May, Prime Minister Anwar Ibrahim had asked EPF to increase the percentage of its investments in the domestic market to 70%. Should this be the case, it could result in lower dividends.

Still, who knows? The Malaysian market could rebound this year and overtake foreign investment returns.

6. Malaysians’ contributions increased in 2023

As a sign the economy is recovering well, contributions by EPF members increased in 2023, growing by 15% to RM98 billion last year from RM85 billion in 2022.

Hence, EPF’s total assets also grew by 13% to RM1.14 trillion in 2023.

What does this mean? It suggests that confidence in EPF is returning in terms of how it manages funds for Malaysians’ retirement, including (or in spite of) the flexible third fund to be implemented next month.

During the pandemic, many Malaysians withdrew their savings to make ends meet, leading to subsequent worries that money could no longer be withdrawn.

While EPF does not have any cash-flow issues, this meant it would have had to exit some of its investments early to meet members’ withdrawal needs. It would also have had to declare losses on investments that needed more time to generate profit.

With contributions having increased at a strong rate, EPF can now maximise returns on your investments without having to be as concerned over withdrawals.

This article was written by Su-Wei Ho for MyPF. To simplify and grow your personal finances, follow MyPF on Facebook and Instagram.