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THE ASEAN-6
Malaysia's state-controlled Employees Provident Fund (EPF) scheme, established in 1952, is arguably one of the most creative and successful national pension plans in the developing world. It is a mandatory defined contributions system, where all employers - excluding own-account workers and domestic households - are required by law to enrol their employees, and make joint contributions with their employees on a monthly basis towards their workers' retirement fund. Overall, the enforcement of the scheme has been quite effective, such that a majority of the working population are members of the scheme. In 2000, the number of contributors totalled 9.75 million, or 66.7 per cent of the total working population.
The EPF's joint contribution rate is regarded by some as being on the high side; currently, the rate stands at 21 per cent of an employee's salary (of which the employer's share is 12 per cent). In effect, the EPF accounts for a sizeable portion of the country's national savings. From 1975 to 1990, the total accumulated contributions grew from RM4.2 billion to RM46.2 billion, and by 2000 the accumulated contributions had reached RM 167.5 billion (approximately US$44 billion). In line with the high growth rate for total accumulated contributions, the EPF's total investments have also grown dramatically, from RM4.2 billion in 1975 to RM 185.1 billion in 2000. As a ratio of Malaysia's gross domestic product (GDP), the EPF's total investments currently stand at about 50 per cent.
The EPF guarantees a minimum 2.5 per cent annual dividend. In practice, however, since 1960 it has managed to give much higher returns. From 1980 until the early 1990s, the EPF paid annual rates of between 8.0 per cent and 8.5 per cent. One consequence of achieving such high annual returns was that contributors came to expect similar high returns later. Consequently, since the...