Suggest dividend rate according to savings balance

SHAH ALAM - Economists believed changing the method of calculating the Employee Provident Fund's (EPF) dividend to a multi-tiered dividend structure is one of the best methods to increase the amount of contributions for those with low savings.

Centre for Future Labour Market Studies (EU-ERA) economist Muhamad Zharif Luqman said the multi-tiered structure is a system where dividends are given at different rates according to the amount of savings of the EPF members.

In other words, the dividend rates are tiered, with different rates applied based on the amount of savings.

"For example, Hafiz who has RM10,000 savings will get a dividend of 6.5 per cent while Zul with RM50,001 savings will get an average dividend rate of six per cent.

"I believe this is one of the best ways to increase the savings of contributors with low savings.

"Nevertheless, we can not deny the rights of individuals with high savings as they are also people who is working and have been saving up for a long time," he told Sinar Harian.

Former prime minister Datuk Seri Najib Tun Razak had previously suggested for the government to change the EPF dividend calculation method to a multi-tiered structure.

The method will allow EPF contributors with lower savings balance to receive higher dividends.

He said this dividend structure will benefit the people who just started EPF savings, including young people who have just started working by helping them reach a sufficient level of savings in a shorter time so they can make withdrawals to buy their first house.

Commenting further, Muhamad Zharif said the government should be fair to all EPF contributors even if their savings had exceeded RM1 million.

This is because they still have the same rights as contributors with RM10,000 savings.

"Therefore, the multi-tiered dividend structure must have a certain threshold value.

"For example, all contributors will get the same dividend rate for the first RM50,000 and the value will decrease for the next RM50,000," he explained.

He said, for example, if an individual had RM1 million savings, the dividend they will receive at current conventional rate of 5.35 per cent is as much as RM53,500.

"Through the multi-tiered dividends, the individuals may receive around RM47,250 which is RM6,750 less. This calculation does not significantly affect their dividend amount," he said.

The proposal to change the EPF dividend calculation to a multi-tiered structure is a brilliant idea but the government needs to examine the proposal so that contributors with higher savings will not be neglected.

Private sector worker Siti Fatimah Mohamed Anwar, 42, said she agreed with the suggestion because low-paid citizens can increase their savings.

"However, contributors with high savings should not be neglected, EPF needs to be fair by giving dividends that commensurate even if the value is lower," she said.

Private sector worker Nurul Huda Mohamed Abhar, 33, also supported the proposal and described it as good as it will not only help low-income contributors but also help youths to buy their first house.

"Many contributors have low savings balance after the government allowed targeted EPF withdrawals during the pandemic.

"Therefore, the government needs to restructure the dividend calculations method to help them," she said.

Meanwhile, Jalen Sdn Bhd executive officer (branding) Mohammad Naqqiuddin Nawawi, 32, thought that although the effort was helpful, some parties considered it unfair.

"Those who withdrew EPF money during the pandemic can benefit more from this method even when not all of them are desperate and need the money.

"It's not fair for people who did not make any withdrawals and are working hard for their old age savings to get low dividends," he said.