1. Background

1.1 On 27 April 2001 MTUC submitted a nine page memorandum to the Employees’ Provident Fund Board reminding EPF of its mission, listing a series of issues, presenting facts and arguments and proposals for improvement and solutions.

1.2 Major Issues listed in the April 2001 memorandum were:

1.2.1 Privitisation of workers’ retirement scheme through annuity scheme managed by private insurance companies.

1.2.2 Drastic reduction of death and incapacitation benefits from RM30,000 to RM2000.

1.2.3 Low dividend of 6% for year 2000, lowest in 27 years.

1.2.4 EPF’s decision to purchase 78.7 million time dotcom shares, which is seen as a rescue mission.

1.2.5 Governments’ refusal to make the EPF Investment Panel accountable to the EPF Board.

1.2.6 Governments’ arbitrary decision to reduce workers’ contribution to the EPF, as an effort to help business organisations to reap bigger profits.

2. EPF’s Response

2.1 So far, following the direct intervention of YAB Perdana Menteri, EPF has addressed partially only one of the 6 issues raised by MTUC 14 months ago. MTUC is relieved that the poorly planned EPF annuity scheme have been scrapped.

2.2 By lapse of time MTUC’s complaint against arbitrary reduction of the rate of employees’ share of contribution into their EPF account has resolved itself and not through any initiative of the Board.

3. The following issues still remain:-

3.1 7% penalty on those withdrawing from EPF annuity scheme.

3.1.1 A 7% penalty imposed on hundred’s of thousands of EPF contributors who were lured and traped into the flawed annuity scheme by greedy insurance companies and their unscrupulous agents still remain a contentious issue.

3.1.2 It is estimated that insurance companies have siphoned of a collosal sum of RM300 million from more than 280,000 contributors by imposing a 7% penalty. MTUC cannot accept EPF’s ridiculous argument that according to the provisions of the contract insurance companies are entitled to penalise the contributors. EPF as the negotiaters, designers and implementers of the botched annuity scheme failed the contributors by allowing the imposition of such a heavy penalty on hundreds of thousands of unsuspecting EPF members.

3.1.3 MTUC wish to remind the Board that at a presentation made to 230 union leaders at Dewan Persidangan MTUC on 26 November 2000, EPF representative said contributors who wish to withdraw from the annuity scheme will have to pay only RM50.00 and NOT 7%. MTUC therefore urge the EPF Board to recover all money imorally and or illegaly retained by insurance companies.

3.2 Reduction of death and incapacitation benefits from RM30,000 to RM2,000.

3.2.1 MTUC’s objections, substantiated by facts and figures (MTUC Memorandum April 2001) still remains. There is no justification for such a drastic reduction and it does not reflect the often repeated ‘caring society concept’.

3.2.2 MTUC has been flooded with complaints not only from union members but also from the public.

3.2.3 MTUC respectfully draw the attention of EPF Board to YAB Perdana Menteri’s letter dated 8 Mei 2001 to MTUC which reads as follows :

“Bersetuju menimbang supaya faedah hilang upaya yang dahulu dikembalikan”.

3.2.4 More than a year has passed since then without any conclusion.

3.2.5 At the 35th Delegates Conference of MTUC all the 650 delegates present debated at length and unanimously adopted a resolution urging the EPF Board to reinstate the death and incapacitation benefits based on the original formula. The said resolution reads as follows:-

RESOLUTION ON THE EPF’s DEATH AND INCAPACITATION BENEFIT FUND

The MTUC Delegates’ conference held from March 5th to 6th 2002, unanimously resolved as follows:

Notes That our country has neither an unemployment benefit system, a national insurance scheme, nor a national health policy to support the unemployed and their families when the main breadwinner in the family suddenly dies or is incapacitated, leaving the dependents in dire straits:

Further notes
That the members most prone to accidents and sickness are the menial workers and out-door workers and therefore, they and their families are in urgent need of protection should any of the members die or are incapacitated in any way.

Acknowledges
That the “Death and Incapacitation Benefit Fund” is an integral part of the EPF Act, providing protection to is members, where they could avail to the full benefit of the Fund (before the latest amendment was gazetted).

Regrets
That both houses of Parliament – The Dewan Rakyat and the Senate in May 2000, unanimously approved the amendment to the Act to reduce the quantum of the benefit to a flat rate of two thousand ringgit (RM2000), whereby rendering the poor and the unfortunate to their peril.

Demands
That MTUC and its affiliates whose main object is to support and protect the working people in the country, put a concerted effort in executing all necessary action to bear on the government to maintain the old quantum under EPF’s Death and Incapacitation Benefit Fund, i.e with a minimum payment changed to RM2000 (from RM1000) and the maximum to remain at RM30,000 based on the original formula stated in the Act before the amendment AND to effect the change retrospective to the date of the last amendment.

3.3 5% dividend – Lowest in 38 years.

3.3.1 The 5% dividend for 2001 is the lowest in 38 years. In 1963 EPF declared a 5% dividend and thereon the rate consistently increased every year until 1987 to 8.5%.

3.3.2 Since 1995 the annual dividend for EPF’s 9 million contributors has been on a downward trend. Even when the country’s economy remained robust, in 1995, EPF dividend went down from 8% to 7.50%.

3.3.3 Provision for diminution in value of equity and doubtful loans has increased from RM753.65 million in 2000 to RM1.141 billion in 2001. Obviously this contributed to the decline.

3.3.4 EPF must disclose the reason for categorising such a colossal sum as doubtful loan. In the past EPF assured the contributors that all loans are Government guaranteed and fully secured.

3.3.5 MTUC is deeply concerned about the state of the Employees’ Provident Fund. There has been a drastic decline in dividends paid to its members while other investment funds have consistently given a higher rate of return to its investors. Reducing dividends to members will gravely endanger the social security of members upon retirement. The lack of accountability of the EPF Investment Board to the EPF Board has raised questions of transparency and doubt on whether or not the EPF funds are being utilised in the interest of its members.

3.3.6 In accordance with the provisions of Section 18 (2) of the EPF Act “The Investment Panel shall be subject to such directions issued by the Board and approved by the Minister, from time to time”. By failing to disclose full details to the Board, the Investment Panel has breached the provisions of Section 18 (2) of the Act.

3.3.7 Section 26A (2) specifically stipulates that

(2) No moneys belonging to the Fund shall be invested in accordance with subsection (1) unless-

(a) the paid-up ordinary share capital of the approved company is not less than five million Malaysian ringgit;

(b) the approved company has paid a dividend at the rate of not less than five per centum upon such ordinary share capital during each of the last three years prior to the time of investment and where the approved company is a company which has acquired the assets and liabilities of another approved company, payment of a dividend by that other company during each of the last three years prior to the time of such acquisition shall be treated as payment by the approved company;

3.3.8 MTUC is of the view that the Investment Panel did not strictly comply with the provisions of Section 26A of the Act in granting of loans and investment in shares.

3.3.9 It is learnt that every year since 1994 the EPF’s investments in its associated companies have incurred substantial losses.

3.3.10 EPF subsidiary companies receive even better treatment. For instance, in 1999, EPF’s total equity in one of its subsidiaries, the Malaysia Building Society Berhad (MBSB), was worth RM706 million at book value, but only RM340 million at market value.

Since 1995, the EPF has lent MBSB an average of RM90 million a year. It’s total loans to MBSB now stand at RM846 million. The market value of the company as a whole is barely one third of this.

Despite this huge injection of cash, MBSB’s auditors express doubts about the viability of MBSB unless EPF continues to provide financial assistance.

3.3.11 If this is not bad enough, MBSB had, at the end of 1999, a number of outstanding law suits against it, claiming a total of over RM900 million. We have not been able to ascertain the current status of these claims.

MBSB, then, represents a potential liability of almost RM2 billion. Yet despite this, the EPF keeps pumping more and more of our money into this ailing company.

3.3.12 MTUC wish to cite the following specific cases to substantiate our argument:

IMPRUDENT INVESTMENTS
Money Lost or at Risk

Company



Malaysia Building Society Bhd



EPF’s investment cost
RM707 mil


Market value at Dec 1999
RM341 mil


Unrealised loss
RM366 mil


Add: loans to MBSB (potential loss if unrepaid)
RM846 mil



RM1,212 mil
RM1, 212 million





Time dotCom



Cost of EPF’s investment inTime Dotcom’s IPO
RM269 mil


Value of EPF’s investment within weeks
RM180 mil


Permanent loss
RM89 mil
RM 89 million





Sistem Transit Aliran Ringan Sdn. Bhd

(STAR L.R.T.)

RM135 mil


EPF’s cost of investment, now written off Loans to STAR, recoverability dependant on Government take over

RM632 mil



RM767 mil
RM767 million

3.3.13 The following resolution was adopted at the 35th Delegates Conference of MTUC :

RESOLUTION CALLING FOR REVAMP OF THE EMPLOYEES PROVIDENT FUND

The MTUC Delegates’ conference held on March 5th to 6th 2002, unanimously resolved as follows:

Notes MTUC is deeply concerned about the state of the Employees Provident Fund. There has been a constant decline in dividends paid to its members while other investment funds have consistently given a higher rate of return to its investors. Reducing dividends to members will gravely endanger the social security of members upon retirement.




Further notes
The lack of accountability of the EPF Investment Board to the EPF Executive Board as also raised questions of transparency and doubt on whether or not the EPF funds are being best utilized in the interests of its members.

Acknowledges
That it is of utmost importance that EPF restores confidence with its members and the public.




Regrets
That the dividends are constantly reduced and MTUC calls upon EPF to pay dividends at a rate of not less than eight (8%) percent.




Demands
MTUC also demands that all EPF funds to be invested in the best interests of its members and not be used to assist any private company.

Given the above, MTUC calls for the urgent restructure of the EPF to make it fully accountable to workers whose life-long savings it holds. This includes making the Investment Board fully answerable to the Executive Board and holding annual meetings of members where the Executive Board can be held responsible for the performance of the fund.

3.3.14 The 230 member MTUC General Council moved a no confidence motion against the EPF Investment Panel for poor investment decisions which has deprived more than 9 million EPF contributors a fair dividend.

3.4 Wasteful Expenditures

3.4.1 In our April 2001 memorandum we drew the attention of the Board to the following :

§ The old EPF Headquarters building located at Jalan Gasing/Federal Highway is almost abandoned. Less than 50 employees are occupying the building which once housed 1800 employees.

§ Whilst EPF’s own valuable office space is left abandoned, EPF has rented office space at Amcorp Mall at considerable cost. Why?

§ EPF has plans to construct its own building in Shah Alam to set up its state Head quarters.

What is the necessity to move to a rented building in Shah Alam?

Why such haste?

How much money would be wasted in rental and moving twice?

§ EPF has established a Training Centre at an exhorbitant cost of RM80 million in Bangi. The facilities at the training centre is comparable to 5 star hotel.

What is the necessity?

How often is it used?

How much is or would be spent on maintenance, administration and other costs?

Would it not be prudent and economical to utilise available facilities and pay for such services whenever needed?

It is true that two years after completion of construction EPF is operating the centre without a CF?

3.4.2 MTUC appreciates the steps taken by the CEO to utilise the EPF Training Center in Bangi.

3.4.3 However the old EPF Headquarters Building in Jalan Gasing still remain largely underutilised whilst spending a huge sum on rental of office space.

3.5 EPF’s Computer Scheme

3.5.1 MTUC welcome EPF’s decision to suspend the computer scheme and urge the Board to scrap the scheme completely.

3.5.2 The scheme is not in keeping with the primary mission which is to provide retirement benefits for members through management of their savings in an efficient and reliable manner.

3.5.3 The situation of the scheme have become so scandalous prompting YAB Perdana Menteri to remark that he was intrigued as to how “enterprising” some Malaysians could be. They were willing to fraudulently withdraw a part of their life savings under the pretext of buying a computer via the Government’s “One Home, One Computer” campaign.

The truth is, Dr Mahathir said, they collect a few thousand ringgit in exchange for the receipt which legitimises the purchase which never took place. The dealer on the other hand, makes a substantial sum from a single customer.

The modus operandi is simple. The dealer or sub-dealer furnishes the receipts to the customer who in return submits it to the EPF to show that the transaction took place.

The cash-desperate customer gets a few thousand ringgit, while the dealer makes a quick profit of a few hundred ringgit.

3.5.4 Profiteers and fraudsters seem to have taken over the scheme.

3.5.5 Even those who genuinely buy a computer through the EPF’s scheme end up paying a higher price that what is offered by other vendors. Rightly computer purchased under the EPF scheme should be cheaper. EPF members are made to pay more because of EPF’s failure to negotiate a better deal in the interest of contributors. Strangely the current arrangement seem to pay greater attention to put more money in the pockets of “middleman”.

3.5.6 We reiterate our call to scrap the scheme.

4. We reiterate our proposal that at least 50% of the Board members should be from amongst workers.

5. MTUC urge the Board to take urgent measures to conclusively resolve all the issues raised in this memorandum.

For and on behalf of

Malaysian Trades Union Congress

Senator Zainal Rampak G. Rajasekaran

President Secretary General

Petaling Jaya

9 July, 2002