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The Employees Provident Fund (EPF) is a retirement savings scheme in Malaysia that was established to help employees save for their retirement years. However, despite its noble intentions, the EPF has been the subject of much debate and criticism over the years, with many people arguing that it is not a reliable scheme. In this blog, we will explore some of the reasons why the EPF of Malaysia is not reliable.

Low Returns

The EPF’s main purpose is to help Malaysians save for retirement. However, the EPF’s low returns have been a point of contention for many years. While the EPF declares an average annual dividend of around 5-6%, it has consistently underperformed when compared to other investment options. For instance, Malaysia’s equity market returned 9.5% in 2020. This shows that the EPF’s performance is not adequate, and investors could get better returns elsewhere

Lack of Investment Diversification

The EPF’s operations lack transparency, which can be a cause for concern for its members. The EPF is a large organization with billions of ringgit under its control. Still, it’s challenging to get information on how it invests its members’ funds. The EPF’s investment portfolio is not published, which can lead to suspicions of irregularities or potential conflicts of interest. The lack of transparency also makes it difficult for members to track their funds and ensure they are being invested prudently.

Limited Access to Funds

The EPF also restricts access to funds, which makes it difficult for members to use their savings when they need it the most. Members are only allowed to withdraw their savings when they reach the age of 55, or if they meet certain criteria such as permanent disability or serious illness. This lack of flexibility can be a significant problem for members who may need access to their savings for emergencies or unforeseen circumstances. In such cases, the EPF is not a reliable savings scheme as it does not provide members with the flexibility they need to manage their finances.

Insufficient Protection for Members

The EPF also offers insufficient protection for its members. While the EPF does provide some basic insurance coverage, it is not sufficient to cover the needs of most members. For example, the EPF offers a death benefit of only RM2,500, which is not enough to cover funeral expenses, let alone provide for the deceased member’s family. Similarly, the EPF offers disability benefits that are insufficient to cover the needs of disabled members. This lack of protection makes the EPF an unreliable savings scheme, as members are not adequately protected against unexpected events.

Political Interference

Another factor that makes the EPF unreliable is political interference. The EPF is a government-linked organization, which means that the government has a significant influence over its operations. This influence can result in decisions that prioritize political considerations over the interests of members. For example, there have been cases where the EPF has been directed to invest in projects that are not financially viable, but are politically important. This can result in losses for the EPF and ultimately, its members.
In conclusion, the EPF of Malaysia is not a reliable savings scheme for several reasons. The EPF offers poor returns, lacks investment diversification, restricts access to funds, offers insufficient protection for its members, and is subject to political interference. These issues make it difficult for members to save adequately for their retirement and manage their finances effectively. To ensure that Malaysians have a reliable retirement savings scheme, the government should consider reforming the EPF