Deputy Finance Minister Chan Kong Choy said today that the low dividend declared for Employees Provident Fund (EPF) contributions was due to the fund's inability to take risks such investing in initial public offerings (IPO).

Speaking to the journalists at the Parliament lobby, Chan said EPF must invest in very low-risk areas that unfortunately does not guarantee high returns.

Apples and oranges

Chan was responding to a question as to why EPF returns have been declining for several years year. The five percent dividend for 2001 was o­ne of the lowest in the fund's history since it started giving returns in 1952, from an all-time high of 8.5 percent during the boom years of the1980s.

"The returns might not be high but the risk factors are not high either. o­n the o­ne hand you don't want high risks but at the same time you want higher returns," said Chan of the Catch-22 situation.

The Malaysian Trades Union Congress (MTUC) had warned that it would mobilise workers to picket at EPF offices nationwide if this year's dividend falls below five percent.

Yesterday, MTUC secretary-general G Rajasekaran said the congress was disappointed with EPF's performance, comparing it to the Armed Forces Fund Board (LTAT) which has paid a 10 percent dividend to contributors since its establishment.

Countered Chan: "You cannot compare apples and oranges. EPF can't get any shares that it wants, whereas other funds are allocated shares and IPOs. EPF is also a much bigger fund."

The deputy minister maintained that despite declining dividends, the EPF is doing its best to ensure good returns for its contributors.

"This is despite the limitations (of no high-risk investments for the fund) and uncertainty under the current economic climate," he said.

Chan added that the EPF was constantly reviewing its investments to ensure good returns, but stressed that it was also responsible for looking after the retirement funds of its contributors.

"We must understand the role of the EPF," he said.

Paper loss

The EPF is a national social security organisation operating through a provident fund in Malaysia with a primary mission of providing retirement benefits for its contributors.

The EPF Act guarantees a minimum annual dividend of 2.5 percent dividend. The fund recorded RM207.5 billion of accumulated assets as at 2002.

The fund's website reveals that about 75 percent of its monies is invested in fixed income instruments, namely government security, the money market and loans, whose returns are tied to interest rates. The remaining funds go into the equities market, where EPF has already suffered a RM10 billion paper loss.

A report in business weekly The Edge early this month also noted that of the RM39 billion loaned to corporations, RM500 million has not been repaid.

Last year, EPF chairperson Abdul Halim Ali announced that EPF would increase its investments in the local share and bond markets from the current RM42 billion to about RM50 billion "to enhance yield o­n the savings" for its 10 million contributors.

EPF, together with the Pensions Trust Fund (Kwap) and the national debt restructuring body, Danaharta, received 76 percent of the unsubscribed portion of the Time dotCom IPO last year amid much controversy.

Class action suit

MTUC president Zainal Rampak said yesterday that the congress' general council has learnt that EPF dividend for this year will be o­ne of the lowest ever, at about 4.25 percent dividend.

Congress secretary-general Rajasekaran said it was considering a class action suit against the EPF for mismanagement and wastage.

"There was much criticism leveled at the EPF in the meeting. We decided to consult our lawyers o­n how to go about it. The congress cannot bring a suit, but a group of its members can bring a suit against EPF for mismanagement and wastage," he was quoted as saying in the New Straits Times .

Rajasekaran said many laws and safeguards in place to regulate the fund's investments have been ignored by the EPF. He cited as an example, EPF's renting of offices in AmCorp Mall and Shah Alam, leaving its building in Jalan Gasing under-utilised.