(Penang, Thursday): The nine million EPF contributors have been confused and bewildered by the controversy over the EPF annuity schemes, particularly as the EPF has not been able to present a convincing case that they are in the best interest of the contributors and the division of the top MTUC leadership on the issue although there are five workers’ representatives on the EPF Board.
The controversy over the EPF annuity scheme is the latest EPF fiasco which does not reflect well on general EPF efficiency and management or the EPF Board governance.
There was for instance the staggering RM260 million unpostable contributions (UPC) scandal, the amount meant to be credited into workers’ Employees Provident Fund accounts but lying idle because of wrong or inadequate information.
The problem was first highlighted by the auditor-general in 1985 and the EPF Board set up a Task Force Committee on UPC to find a solution, but instead of resolving the issue, the UPC problem has assumed gargantuan proportions, doubling from RM153 million in 1994 to RM262 million in June this year.
MTUC secretary-general G. Rajasekaran has made many valid points which have still to be answered by the EPF, including why the annuity schemes are not managed by the EPF, so that the profits would also accrue to the nine million EPF contributors and not to the six insurance companies operating the schemes, particularly as one of the six insurance companies, MAA Holdings Bhd. had said that it expects to earn about RM9 billion in the next three years from managing the annuity schemes.
Consumers Association of Penang (CAP) had raised another objection which had not been convincingly rebutted by EPF – that the EPF Annuity Schemes would largely benefit the insurance companies and not EPF members.
CAP said a recent study showed that the highest rate of return from investing in the scheme is 4.5 per cent per annum. The member who leaves his money in EPF enjoys a rate of at least 6.7 per cent per annum, which is a conservative average estimate of EPF dividends in the future.
If a member wishes to invest in the scheme at age 20, he has to pay a premium of RM6,150 in order to receive an annual income of RM1,200 at age 55, payable at RM100 a month.
But if that RM6,150 is instead left in EPF, it will increase to RM59,513 when the contributor reaches age 55 because it will be compounding at the rate of 6.7 per cent for 35 years. If at the age of 55, the member does not withdraw his EPF savings but leaves it with EPF under its Annual Dividend Withdrawal Scheme, he will continue to get a dividend of 6.7 per cent per annum from EPF. The interests earned on RM59,513 will amount to RM3,987, which is three times the RM1,200 per annum paid by the scheme.
In the interests of fair play and the best welfare of the nine million EPF contributors, the EPF annuity schemes should be suspended until an independent expert study has been set up to advise the nine million contributors on the schemes, particularly on whether there are better systems for operating such annuity schemes.
In the meantime, the EPF and the Finance Ministry should make public all studies and reports on the EPF annuity schemes which it had commissioned or received in keeping with open, accountable and transparent governance.