KUALA LUMPUR, October 30, 2018 – Malaysia’s experience in transforming the Employees Provident Fund (EPF) from a small public retirement fund to among the largest in the world serves as a useful case study for governments around the globe, says a new World Bank report launched here today.
The "Case Study on the Employees Provident Fund of Malaysia" report outlines key lessons underpinning the fund’s successful transformation. The EPF’s strong governance structure has insulated it from political interference. People with the right talent and skills filled key positions with oversight from a governing board.
"As a nation prospers economically, it is important that the social wellbeing of her citizens is maintained at an equal pace. Social security should therefore rank high on the agenda of all developing nations to ensure that no one gets left behind," said Tunku Alizakri Alias, EPF Chief Executive Officer. "We look forward to further collaborations with the World Bank in the areas of social protection and social wellbeing"
The report also notes that EPF’s investment strategy produced enhanced returns by diversifying to foreign markets and new asset classes. The average yearly nominal dividend through the 2010-2016 period was 6.2 percent, consistently outperforming the Fund’s 2 percent target for 16 years running, except in 2008 due to the global financial crisis.
"In 2015, one in eight people worldwide was 60 or older; in 2030, this number will be one in six, and by 2050, one in five. Establishing a robust institution such as the EPF is a goal of many countries around the world as a key step towards ensuring the well-being of their citizens," said Richard Record, World Bank Acting Country Manager for Malaysia and Lead Economist. "We look forward to collaborating more with EPF on aspects of social security as well as policy solutions for an aging population to ensure that everyone benefits from Malaysia’s progress towards developed country status."
The report identifies key challenges for Malaysia, due to the country’s changing demographics. Malaysia is ageing rapidly, and many Malaysians do not have the recommended minimum savings needed for retirement. Also, only half of those in the labor force contribute to the EPF. This leads to the need to expand coverage particularly for the self-employed. Another key challenge is the need to maintain public trust and remain relevant. This becomes particularly difficult in the age of the fourth industrial revolution and the gig economy that present new needs and demands.
The report concludes by highlighting the importance of developing a long-run investment strategy, driven by the best interest of its members. It stresses that the Fund needs to evolve over time as it gains scale, expertise and experience, recognizing that the right approach is not static and needs to adapt to maximize returns.
Knowledge and Research reports are flagship publications of the Malaysia Hub. This report is part of the Malaysia Development Experience Series, which captures key learnings from Malaysia that are relevant for developing countries around the globe as they transition out of poverty and into shared prosperity.