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Case Study on the Employee Provident Fund of Malaysia (English)

This paper documents the best practices and practical lessons learned from Malaysia’s largest mandatory public provident fund, the Employees Provident Fund (EPF). The objective of this paper is to increase the knowledge base of efficient pension funds for developing countries, drawing from Malaysia’s experiences. Findings include key critical factors that contributed to the successof the EPF, from a small pension fund set up in 1949, to become one of the largest pension fund among developing countries and the 15th largest in the world. This paper summarizes the EPF’s key strategies in corporate governance, investment, and operational strategies, as well as policies deployed by the EPF in managing its assets. The lessons from the EPF come from three main factors. Firstly, the EPF has developed a strong governance structure which discourages external politicalmeddling and encourages transparency and accountability. Secondly, the EPF’s investments strategy, guided by its Strategic Asset Allocation, including diversifying to foreign markets and new asset classes, has enabled the Fund to produce enhanced returns. Thirdly, the EPF’s operational effectiveness which is driven by the professionalism of their employees and their continuous improvement for members’ benefit. Nonetheless, several challenges remain in the present and in the future. The first challenge involves demographic changes as Malaysia is ageing more rapidlythan other countries and even now a sizable number of workers do not have the recommended minimum savings level needed for retirement. A revamp of the current model is needed to ensure that members will be financially independent post-retirement. The second challenge is lack of coverage: only half of those in the labour force are contributing to the EPF, which leaves the other half without oldage pension coverage. A reform agenda needs to expand coverage particularly for the self-employed. The final challenges are maintaining public trust and staying relevant, especially in the age of the fourth industrial revolution and the emerging gig economy that has different needs and demands. This case study will hopefully be of benefit to both policy makers andpractitioners, particularly in the developing world. It could help play an important part in designing a successful provident fund to contribute to a comprehensive social safety net for citizens.

Details

  • Author

    Price,William Joseph, Khalif,Muhammed Abdul, De Luna-Martinez,Jose, Zhang,Wei, Arshad,Ashraf Bin

  • Document Date

    2018/10/01

  • Document Type

    Working Paper

  • Report Number

    131289

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    Malaysia,

  • Region

    East Asia and Pacific,

  • Disclosure Date

    2018/10/24

  • Disclosure Status

    Disclosed

  • Doc Name

    Case Study on the Employee Provident Fund of Malaysia

  • Keywords

    global real estate; asset class; employer having; external fund managers; contribution rate; overseas markets; return on investment; domestic capital market; money market instrument; asian financial crisis; due diligence process; Type of Investment; private sector professionals; sum of money; domestic corporate bond; strategic asset allocation; government bond market; internal control system; social protection institution; long term gain; real estate fund; public pension scheme; balance of power; share of investment; capital market development; number of workers; risk management framework; conflicts of interest; defined contribution retirement; share of asset; defined contribution pension; individual retirement account; domestic stock exchange; private equity fund; risk tolerance level; private pension fund; impact of liberalization; private sector worker; good corporate governance; provident fund; nominal dividend; monthly contribution; institutional investor; fixed deposit; guaranteed return; operational effectiveness; Investment strategies; dividend rate; annual dividend; active risk; internal capability; cumulative investments; government security; retirement age; labour force; investment requirement; statutory bodies; retirement fund; informal sector; risk limits; real return; initial investment; stock market; investee companies; voluntary disclosure; foreign asset; voluntary basis; external managers; innovative policy; economic crisis; minority shareholder; world economic; asset diversification; relative performance; fund investment; average returns; average investment; simple average; Emerging economies; unit trusts; regulatory restriction; active participant; head start; fiduciary duty; corporate disclosure; emerging economy; depth knowledge; government entity; allowable investment; corporate structure; foreign currency; sound investment; investment issues; public fund; political interference; Investment companies; separate entity; skill set; internal capacity; internal fund; savings account; private consumption; mandatory contribution; global knowledge; financial statement; brown field; social media; financial market; retirement saving; investment position; site visits; tradable security; children's education; investment limit; investment approach; direct investment; governance strategies; working population; diversification program; investment fund; private investment; economic recession; policy option; depth analysis; market downturn; small pension; secondary data; pension system; investment return; geographical location; market participant; alternative investment; operational strategy; capital preservation; industrial revolution; pension coverage; financially independent; internal research; investment asset; demographic change; foreign market; income instrument; multiple asset; bond issuance; account holder; Natural Resources; market performance; global portfolio; capital value; investment policy; push factor; broader investment; bond pricing; securities issue; dividend payment; small country; good governance; positive return; gross income; investment expertise

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Citation

Price,William Joseph Khalif,Muhammed Abdul De Luna-Martinez,Jose Zhang,Wei Arshad,Ashraf Bin

Case Study on the Employee Provident Fund of Malaysia (English). The Malaysia Development Experience Series Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/197861540400101962/Case-Study-on-the-Employee-Provident-Fund-of-Malaysia