Memorandum To The Employees’ Provident Fund Board

1. Background

1.1 Overview

The Employees’ Provident Fund Act 1951 introduced the EPF scheme which provides retirement benefits for members through management of their savings in an efficient and reliable manner. The EPF also provides a convenient framework for employers to meet their statutory and moral obligations to their employees. EPF has a total of 9.4 million members; out of this about 5 million are active and contributing members.

1.2 EPF’s Mission Statement

The Employees Provident Fund is a National Social Security Organisation operating through a Provident Fund in Malaysia. Our four-fold mission is as follows:

1.2.1 For the members

Our primary mission is to provide retirement benefits for our members through management of their savings in an efficient and reliable manner.

1.2.2 For the employers

We are committed to provide an efficient and convenient system to ensure that they meet their statutory and moral obligations of contributing to the EPF for their employees.

1.2.3 For the nation

We are also committed to the nation’s socio-economic development through our prudent investments.

1.2.4 For our employees

To our employees, we will provide a motivating, participating and challenging working environment which can propel them to peak performance.

2. Major Issues

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

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

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

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

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

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

3. EPF Annuity Scheme

3.1 The designing of the annuity scheme seems to have been shrouded in secrecy until the eve of its launch on 1st July 2000. EPF should widely publicise such important scheme to enable contributors to express their views before its finalisation

3.2 However insurance companies were well informed of

the scheme and the profits they would make. In mid August 2000 a leading financial weekly quoted MAA Holding’s Chairman stating "with the volume of sales that we expect to achieve, the funds inflow will completely change the insurance industry landscape. The Companies involved can expect to be five times larger than what they are to-day". And Takaful Malaysia CEO said "it hopes to eventually get about 20% of the pie".

In a statement published in the Sun on 12 August 2000, MAA CEO was quoted as saying that "MAA Holdings Bhd expects to rake in RM9 billion form its new EPF pension business over the next three years".

3.3 Nowhere in the lengthy article there was even a mention in passing about what they plan to do for the contributors who are expected to pump in millions of Ringgits from their hard earned money: Nothing at all about their commitment to the contributors.

3.4 EPF says that the scheme was set up in response to the need of a large portion of its 9 million contributors who wanted recurrent income instead of a lump sum payment.

3.5 Despite widespread criticism EPF has refused to suspend the scheme stating that contributors have the right to opt or not. The uninformed, the illiterate, the less educated and the weak will succumb to the misleading and unethical campaign.

3.6 The question that need to be answered is why did EPF, which is supposed to be the trusted guardian of members’ savings, come out with such flawed scheme which is more beneficial to insurance companies than its members?

3.7 MTUC’s computation shows that the sum of money needed to buy a certain annuity income if left in the EPF could generate interest income more than twice the annuity income without having to give the capital away.

3.8 This interest income may be enjoyed in perpetuity instead of being guaranteed for only 10 years on early demise of the annuity holder.

3.9 MTUC maintain that the annuity scheme is totally unnecessary as EPF already has an option for monthly release of funds, which will bring more benefits to members than the annuity scheme. EPF should establish and manage the scheme inhouse.

3.9 Unethical and misleading campaign continue unabated despite Bank Negara’s warning and EPF has rejected MTUC’s proposal to stop insurance companies from using EPF’s name and logo to attract contributors, to the scheme. EPF as the Guardian of workers savings has seen fit to allow private companies unfettered opportunities to make a run on its members money.

3.10 The EPF should scrap the scheme immediately and live up to its role as custodians of workers’ money with a mission to maximise returns for its members. EPF should not allow a bad scheme to continue to put its members’ savings at risk.

4. Death and Incapacitation Benefits

4.1 Effective 1st July 2000 EPF has reduced the death and incapacitation benefits from a minimum of RM1000 and maximum of RM30,000 to a flat rate of RM2000 without any logical reason.

4.2 EPF’s reasoning that only the rich benefited from the higher maximum and whereas the poor only received the minimum, is most ridiculous and unsubstantiated.

4.3 Funds for this scheme comes out of the earnings from contributors funds and it does not in anyway burden the EPF or the Government. The reduction demonstrates EPF’ uncaring and inconsiderate attitude.

4.4 Even contributors who died or became incapacitated prior to 1st July 2000, the effective date of the reduced benefits, EPF has refused to pay them compensation based on enhanced rate that existed.

4.5 MTUC propose that EPF restore the benefits that existed prior to 1st July 2000. The amendment must be back dated to 1st July 2000 in order to ensure that no one is deprived of this compensation.

5. 6% Dividend for year 2000

5.1 The 6% dividend for year 2000 is the lowest in 27 years. It is evident that EPF has become complacent : Especially in the last 10 years. Notwithstanding the economic downturn, EPF’s dismal performance is a big let down for the 9 million contributors. Even smaller retirement funds managed by Armed Forces Fund and trust funds managed by Tabung Haji have consistently declared significantly higher dividend.

5.2 Even during the recession years of mid 80’s, EPF declared a higher dividend of 8.50%. We must remind the EPF Board that the entire working population in the private sector depend on their savings with the EPF for their survival and to provide for their dependants after retirement. Unlike most Government employees, workers in the private sector do not receive any pension. Workers have placed their faith and trust on the EPF Board to manage their savings efficiently and enhance its growth to make up for the decline in the purchasing power of the ringgit due to inflation.

5.3 Over the years, workers have become increasingly doubtful over the ability of EPF to safeguard their lifetime savings. We are not convinced that EPF’s dismal performance is a result of the economic downturn. In our view the economic downturn has provided a good cover to hide their failure.

5.4 The ever increasing unpostable contributions is an excellent example of EPF’s lack of commitment. A colossal amount of more than RM150 million remains as unpostable contributions. Inspite of spending millions of ringgit on high technology equipments and main frame computers such a huge of amount of contribution remain unpostable. Only after public criticism EPF established a task force committee to seriously address the issue.

5.5 Even in good times many employers failed to remit contributions in respect of thousands of workers. EPF’s failure to act quickly and decisively has led to huge loses. This situation would worsen during the coming months.

5.6 As always EPF’s disclosure was not complete. Apart from stating a loss of RM749.68 million, there was no further detail to explain the loss.

5.7 In a lengthy article published in the New Sunday Times, March 4, 2001 Kadir Jasin said that "EPF must be made accountable for the losses, more so when it was reported that as much as RM1 billion was from a single banking and finance group. They are believed to be RHB, RHB Capital and RHB Sakura. The sole purpose of the RM1 billion irredeemable non-cumulative convertible preference shares was for the rescue of SIME Bank which RHB carried out at the request of Bank Negara Malaysia".

5.8 Even before the contributors could recover from the disappointing 6% dividend for 2000, EPF was reported to have taken up 78.7 million shares from Time dotcom initial public offer and overnight incurred a whopping loss.

5.9 EPF Chairman’s subsequent explanation confirmed EPF’s involvement. In 1996, EPF approved a short-term loan of RM500m to Time dotCom. The loan was secured by a corporate guarantee and an undertaking that part of the proceeds of the impending IPO of Time dotCom were to be assigned to EPF. Why did EPF grant the loan in the first place when there was no tangible security? The undertaking to assign part of the proceeds of the impending IPO is not a security as the IPO was yet to be approved by the relevant authorities and the underwriters for the IPO was not in place yet.

5.10 It must be noted that only 25% of Time dotcom IPO shares was subscribed. Despite having full knowledge of time dotcom’s poor showing EPF’s decision to take up a huge portion of the IPO shares is definitely not in the best interest of contributors. The poor judgement displayed by EPF raises concern on the capability and objectivity exercised by EPF’s Investment Panel.

6. EPF Investment Panel

6.1 Investment Policy

EPF should publicly state its investment policy. Even insurance companies have a guideline that all loans granted by them should be secured by landed properties or bank guarantees and if unsecured, the loans should be rated a minimum of BBB by rating agencies. In the case of equities, insurance companies are allowed to invest not more than 5% of the investee company’s paid-up capital.

6.2 Transaparency in Investments

Investment panel should obtain prior approval of the Board before embarking on major investments, such as Time dotcom. The EPF should publish a quarterly statement not later than 30 days after the end of each quarter, giving details of its investments and the loans granted in each quarter and details of any default in the loans granted and any diminution in investments in public quoted shares.

6.3 Monitoring of Investments

EPF should closely monitor its investments in public-listed companies by sending competent representatives to attend company AGMs and EGMs. The representative should analyse all company circulars and be prepared to seek clarification at the AGM/EGM. The representative should also vote against company resolutions, which are not in the best interests of the company. The EPF should also sue directors for breach of fiduciary duties where directors of public listed companies have acted to the detriment of the company’s interests. The EPF should also consider appointing individual contributors who are competent in the areas of corporate and financial matters to represent its interests on the board of public-listed companies. Workers’ representatives in the Board should be nominated to participate in such meetings.

6.4 Provisions for Loan Losses and Diminution in Value of Investments

What is EPF’s policy on making provisions for loan losses and diminution in value of quoted investments?

Does EPF follow the guidelines set by Bank Negara in making provision for bad and doubtful loans?

6.5 EPF Balance Sheet for the year ended 31 December 1999 shows property held for development valued at RM830.027 million.

Where is the property located?

Does this affect EPF’s earnings?

7. Wasteful Expenditures

7.1 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.

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

7.3 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?

7.4 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?

8. Reduction of Workers Contribution

8.1 The recent decision of the government to arbitrarily reduce workers’ contribution shows complete disregard for the existence of the EPF Board. MTUC and contributors’ protests were completely ignored.

8.2 Early last year the Board debated and unanimously rejected a similar proposal. Government’s directive therefore, has undermined the role and function of the EPF Board.

8.3 Despite MTUC’s repeated request to allow workers to maintain their contribution at 11% and require only those who wish to reduce the rate to the new statutory minimum of 9%, EPF remain adamant. This has created widespread confusion and unhappiness.

What is the rationale for such recalcitrance?

Is the new schedule legal?

8.4 It is the duty of EPF to provide form 17A, well in advance to all employers and contributors. It was reported that EPF could not meet the demand for Form 17A. Why EPF did not delay the implementation of this controversial and unacceptable scheme to a later date?

9. Role of workers’ representatives in the Board

9.1 On March 12, 2001, inspite of strong objections from all workers representative in the Board, the Board went ahead to amend the EPF Act to arm the Minister with powers to introduce any scheme he deems fit without seeking approval of the Parliament.

9.2 Since the Board is empowered to decide on the future of the workers money, at least 50% of the Board members should be representative of contributors.

9.3 Members of the Board should be free to disclose the proceedings and decisions of the Board to organisations they represent.

9.4 The work of the Board should be transparent to contributors at all time.

10. MTUC is not demanding for anything extraordinary, we merely want EPF to respect and faithfully implement its own corporate values:

EPF’s corporate values

We regard customer satisfaction as a priority.

We shall maintain integrity, loyalty and trust at all times.

We seek continuous improvement in everything we do in a cost effective manner.

We value ‘pleasure to serve’ above ‘duty to discharge’.

As trustees, we will invest the funds in a prudent manner.

We shall protect and add value to the members’ savings.

We uphold ‘team work’ above ‘individualism’.

We will communicate openly and sincerely.

We will develop employee potential to the fullest and provide them with sufficient empowerment and responsibility to act on behalf of the organisation.

We shall reward and promote employees on merit.

DON’T TREAT THIS AS MERE SLOGANS!

For and on behalf of

Senator Zainal Rampak G. Rajasekaran

President Secretary General

Petaling Jaya

27 April, 2001