The Employees Provident Fund (EPF) - a mandatory savings fund for private sector workers - has declared the lowest dividend rate in 40 years, 4.25 percent for 2002.

The last time the dividend rate was lower than 5.0 percent was in 1962 when it was 4.0 percent.

The EPF said the dividend rate reflects the difficult investment environment of a low-interest-rate regime for the last four years as well as a lacklustre stock market.

According to Bernama , for the year under review, the EPF will require a higher amount in percentage terms - RM1.82 billion to pay o­ne percent of the dividend rate to its 10.3 million members, compared with RM1.67 billion in 2001.

The dividend rate of 4.25 percent for 2002 offers a 2.45 percent positive real rate of return considering the inflation rate of 1.8 percent.

In a statement today, EPF chairman Abdul Halim Ali said the fund would continue to pursue a prudent investment strategy and was committed to preserve the value of members funds in a challenging investment environment arising from global developments.

He said the pressures of delivering high returns for 2003 and the next few years were expected to continue.

Lower income

For 2002, EPF said its gross income was RM10.75 billion, a decrease of 4.52 percent from RM11.26 billion in 2001.

However, higher provision for paper losses in equity (RM2.14 billion), as an additional prudent measure in line with international accounting principles, resulted in a net income of RM7.78 billion for 2002.

Income from interest bearing instruments such as Malaysian Government Securities (MGS), loans and bonds and money market instruments all registered decreases compared with the previous year.

Nevertheless, returns from equity investments had improved in 2002 due to realised gains from a more positive market performance in the first half of the year.

At that time, the KLSE Composite Index hit the highest closing of 808 points but declined to lower levels in the later part of the year, EPF said.

Meanwhile, income from its investment in the Malaysian Government Securities (MGS) in 2002 stood at RM4.55 billion from RM4.71 billion in 2001, loans and bonds at RM3.05 billion from RM3.89 billion, money market instruments at RM989 million from RM1.31 billion, equity at RM2.10 billion from RM1.29 billion, and property at RM18 million from RM17 million previously.

In percentage terms, EPF said MGS contributed 42.30 percent of the gross income for 2002 with loans and bonds accounting for 28.37 percent, money market instruments 9.20 percent, equity 19.5 percent and property 0.17 percent.

The gross rates of return for MGS was at 6.65 percent as against 7.52 percent in 2001, loans and bonds at 6.48 percent from 9.33 percent, money market instruments at 3.53 percent from 4.03 percent, equity at 4.63 percent from 3.19 percent, and property at 1.38 percent from 1.39 percent.

Paper losses

As a result of the low-interest-rate regime, the rates of return for fixed income instruments in 2002 had declined compared with 2001, it said.

Gross income from equity showed an improvement but higher provision for paper losses negated income contribution from this asset class.

As at Dec 31, 2002, EPF's investments in the five portfolios totalled RM203.78 billion, an increase of RM16.83 billion, or 9.0 percent, over investment of RM186.95 billion in 2001.

Out of this, MGS accounted for RM72.98 billion (35.81 percent), loans and bonds at RM51.87 billion (25.45 percent), money market instruments at RM27.56 billion (13.53 percent), equity at RM49.98 billion (24.53 percent), and properties at RM1.38 billion (0.68 percent).

Overall, about 75 percent of EPF's investments for 2002 were in fixed income instruments which are dependent o­n the interest rate with the bulk of the balance in equity.

Investments in property amounted to less than o­ne percent, it said.