There are two things you ought to know about your retirement money right now.

EPF is investing our retirement money for potentially higher return by:

1)    Investing larger sum in global markets (read: foreign exchange risk)

2)    Investing in subprime housing loan (read: default risk)

You and I are part of the statistics of 5.7 million EPF contributors.

There is only one thing we may want to consider after digesting the details of these two moves by EPF,  further below, and that’s –

Withdraw your EPF money to purchase/build your home or to reduce/redeem your housing loan.

These are what we know so far: –

Global Investment Diversification: The Facts

Since April 2011, the Employees Provident Fund (EPF) has intensified its investment in global equity and fixed income to add value and provide a reasonable rate of return to the savings of its members.

The fund’s total exposure in global investment assets as at Dec 31, 2011 was only 13.37% of its half a trillion rinngit of total assets.

Fast forward one year, its Chairman said that EPF will increase its investments in global equity and fixed income in line with the mandate given by the Government to now invest up to 23% of its investment assets in international markets as part of its investment diversification strategy.

Otherwise, it claimed it would be hard to maintain dividend of 5.8 percent and 6.0 percent in 2010 and 2011 respectively.

Quote from EPF Chairman:

“The EPF faces constraints domestically given the limited breadth of investment products and liquidity to trade on large volumes. Aside from mitigating the concentration risk in the domestic market, overseas investments offer higher opportunities for capitalisation of returns over a long-term investment horizon”

However, we need to know that – Risk and return are positively correlated.

Wait, let me rephrase this.

Return and risk are positively correlated.

Sounds much better, aye?

There is absolutely no such thing as having the security of Fixed Deposit and at the same time, having a return of 20 percent a year.

Anyone who tries to sell you such idea is either a swindler or misinformed.

Subprime Housing Loan Scheme: The Facts

The amount

  • RM 300 million tranche drawn out of the total RM 1.5 billion allocation plan to finance subprime house buyers.

*Subprime house buyers/borrowers = individuals who are not able to borrow from normal banking institutions

  • Federal Territories Foundation has set up a SPV (Special Purpose Vehicle) to handle the loans.

The Arrangement

  • The Minister said loan is secured by DBKL. Loan is to government, not individuals.
  • The ownership of the house shall remain with the SPV until the Ijarah* lease agreement has been fully settled by the subprime borrowers.

*Ijarah means Hire Purchase – which means, a flat rate interest throughout the financing term, unlike conventional mortgage loan. Read here to convert from HP rate to real rate to make apple to apple comparison with normal housing mortgage rate.

The Return

  • EPF get 5.5 return ROI annually with projected 10 percent risk of default
  • DBKL will buy back the houses to secure the cash flow required for the repayment of the loan in the event of non-payment.
  • Good thing is that collaterals of these loans are real estate properties. Properties are always a good hedge against inflation, provided there’s no housing bubble burst like in the US.

*Legally, EPF is only obligated to give you only 2.5 percent dividends as per Section 27 of the Employees Provident Fund Act 1991

The Caveat

  • What are the borrowers’ details? What are their credit ratings? What houses are they buying (and their prices?)? What are the REAL reasons they don’t qualify for loan from banks? And what determine whether someone qualify for this scheme when banks rejected them? If I earn RM 1,000 a month, do I qualify?
  • If borrowers default, will government use its money to repay EPF?

*Hold on, doesn’t government’s money come from our money too? The 6% government tax we all pay nowadays?

I am not against charity (which is a totally different thing) or government’s People First, Performance Now effort the bridge the gap between the rich and the poor. But if it’s your money, I think you could think of a better way to utilize it.

I’ll let you sleep over it.

p/s – Share this if you think more people should also sleep over this.


LCF on Personal Finance is a free community blog which focuses on simplified and practical money knowledge you could apply instantly. The founder, CF or Lieu, as he is fondly known, thinks that personal finance does not have to be boring; he regularly churns out articles on money issues affecting the man in the street, such as “Take this 8 immediate actions this year to pay less income tax last year” when he’s not solving engineering issues.



CF Lieu
CF Lieu

CF Lieu (CFP) is an independent financial adviser and maintains an active vlog at

    8 replies to "This Concerns your EPF Retirement Money – Must Read"

    • sw

      THX for ur reply. i was merely looking at my mthly installment which half of it goes towards interest repayment. that yearly interests look so much more compared to the dividends i got so i tot the calculation is not so straight forward as to just look at 4% vs 6.15%.

      • KCLau

        @SW, if you are looking at the absolute number alone, 4% of 500k might be easily higher than 6.15% of 100k.

    • sw

      if my housing loan interest rate at 4% p.a., should i withdraw from EPF to repay this or leave it in there? appreciate your advise pls. THX.

      • KCLau

        @SW, EPF is giving higher return than your 4% loan interest. Anyway, you can opt of the Account 2 withdrawal for home loan installment. Then you extra cash flow can be invested to get higher return than EPF, if you know what you are doing.

    • […] This Concerns your EPF Retirement Money – Must Read […]

    • Joseph Chieng

      Those workers contributing up to age 50 or 55 would not be able to withdraw theirs and employers’contribution (except withdrawal for allowed purposes)which may amount to a few millions (?) per month. Signs of trouble when outgoing withdrawal exceed incoming EPF contribution s. Unit Trust investment may not be a viable alternative. Can invest in Banking stocks like CIMB, Maybank and Public Bank stocks direct instead or send out money overseas to better managed Banks.

    • Azydy

      I have withdraw some of my epf to invest in private unit trust, more better..

      • lcwah

        from my own experience it is better to invest directly in Bursa , cut out all the high commisions we have to pay !

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