YES, I am raising some areas to take note for members withdrawing EPF for unit trust investments.
It is very common for Malaysians to withdraw their EPF savings for investing into unit trusts today, especially with the current market condition that provide opportunity to potentially earn higher returns compared to EPF dividends over the long term. It is also a good way to diversify some of your savings to other investment vehicles.
Today I believe there should be about 60% of EPF contributors withdrawing from EPF to invest into unit trusts; and I dare say ALMOST 100% of these investors put their money through tied unit trust agents who are mainly their family members, friends or relatives in the industry representing different unit trust companies. Most of the tied unit trust agents in the industry are part-timer and have limited investment knowledge. Therefore they normally don’t stay long in the industry.
From my experience most EPF members invest through a number of different agents, they will then start to put together somewhat of a portfolio from various unit trust fund houses. Effective 1 February 2008, the amount eligible for EPF members’ investment withdrawal is 20% of Account 1 after deducting basic savings amount which varies according to members’ age. Members are eligible to make withdrawals every 3 months to invest into EPF approved funds. (More info at KWSP website: http://www.kwsp.gov.my/index.php?ch=p2members&pg=en_p2members_wdrawtype&ac=2660 )
Most of what I mentioned above is nothing new. However, as a financial planner, I discovered THREE main issues investors ought to be aware of:
1. Most EPF members are UNABLE to manage their unit trusts investments portfolio.
2. Who will be responsible to MONITOR, LOCATE and REDEEM all the investments should the member passes on or have migrated to another country?
3. Who is responsible to provide the service when the agent resign or got terminated?
Now, let me decipher and explain my concerns. Why do I mention that investors are unable to manage their EPF investments?
· Insufficient information on EPF statement for tracking.
When a member withdraws for unit trust investments, the statement from EPF will just show as “Pengeluaran Pelaburan – Unit Amanah”. It do not show which unit trust company the money is placed with. If a member redeem the investment, the statement will just show “Pemulihan IPD” again do not show from which unit trust company. How is the member going to manage his or her unit trust investment without detailed information or summary of all his withdrawal or redemption from the respective fund houses?
· Not all members monitor or track their unit trust investment in the EPF account.
If a member invested through multiple agents over the years, it would be extremely difficult to track or monitor the investment especially when the servicing agent resign or got terminated. In most cases the members have to do it themselves and provided they have the information.
Through time, investors will lose track on their investments. Investors are unable to track how much was withdrawn for investment (especially for investors who withdrew once every 3 months to top up), their gains or losses when redeem and most importantly, NO CONSOLIDATION of their entire unit trust investment with different fund houses. However, investors are able to check with EPF through an extremely time consuming exercise.
What you do not know, you cannot manage! And if you cannot manage, you are taking a high risk of losing your financial objectives. Therefore, I would want to suggest to EPF to provide a detailed summary of EPF member’s investments into unit trust. The other area I would like to bring up to EPF is to have their statements in dual language (or choice of language) to benefit both local and expatriates contributing to EPF.
Next, I want to post you this question; that who will be responsible to LOCATE and REDEEM all the investments should the member die? Try reflecting the questions below to yourself and do you have the answers?
· Do your nominees know how much you have invested in unit trust over the years from EPF withdrawal? (especially when your EPF statement do not provide a summary to show how much is withdrawn and to which unit trust companies)
· Let’s assume your nominees are aware of all your investments, do the nominees have authority to redeem your money without a letter of probate or letter of administration?
· What will happen to the unit trust investment when your nominee do not know and have just taken the amount shown in the EPF statement and account is closed?
· Does the redemption money need to go back to EPF when account closed?
· What if your nominee is a minor and have to wait until age 18 before he or she can withdraw the money? Who then can redeem the unit trust investment?
· When the nominees are adult and minor then what would be the current practice based on the above situation?
If you do not have the answer, I suggest you look into it immediately. I have witnessed many cases where beneficiary suffered and went through heart breaking moments not only due to the loss of a loved one but also unable to access to their funds. There are also cases where the beneficiary claimed the money from EPF and later discovered that the deceased still have a bulk of money invested in unit trust using the EPF fund. There is also a case of client who migrated and later realized that she has invested in unit trust with her EPF fund but couldn’t remember which fund houses as she do not have any records and EPF couldn’t help her either. I have to practically write to all fund houses in Malaysia to check whether she has investment account with them. Some replied and I managed to help her redeemed and put it back to EPF. Imagine what if she is no longer around.
Since money is the second most important area in your life after health, I am sure nobody like to lose their hard earned retirement money through ignorance. However, without consolidation and a professional managing your money, financial leakage will take place.
A person who is cautious with their money will always begin with the end in mind. When you begin with the end in mind, you will have a personal direction to be financially organized, which will help accomplish your goals more quickly and easily!
