[The original posting can be found at: http://alnaqiy.com/article/simpanan-shariah-by-epf/]

The Employees Provident Fund’s (EPF) new Shariah-compliant savings scheme will be open for registration on August 8, 2016.

The EPF’s chief executive officer Datuk Shahril Ridza said the retirement fund has allocated an initial RM100bil, which is about 15% of it’s total investment assets of RM681.7bil as at March 2016.

This announcement would be interesting to keep an eye on as it is probable will give impact to the movement of Islamic finance industry, particularly in Malaysia. From consumer’s point of view, should they switch to the Shariah savings scheme or not, since the savings are for their retirement in their senior years. How about the financial planners and industry experts? What do they say on this matter?

Simpanan Shariah – To Switch or Not To Switch, What the Financial Planners and Industry Experts Say? [1]

“Although EPF has been good at managing the pension fund, it does not have a track record for its Shariah-compliant account.”

“The prohibition on switching back [to the conventional account] is very inflexible for members. They will be locked in the Shariah investment account and not be able to do anything if it does not perform. This may cause them to have a smallest nest egg. Thus, they should wait and see how the initial allocation performs because at the end of the day, we are not sure how Simpanan Shariah will fare.”– Robert Foo, Managing Director of MyFP Services Sdn Bhd

“EPF members should not make any hasty decisions. We are talking about the contract for the number of years that you have until your retirement. If you are comfortable with the dividends you are receiving now, I would advise you to stay with the conventional account. You have the option of switching later, should you feel the need, so you might as well wait and see if any new mandates come along or any new information is released that will convince you to switch.” – Kelly Wong, CEO of Blueprint Planning International Sdn Bhd

“Although historical performance does not indicate future performance, it should be taken into consideration. In the short term – over three and five years -, the FTSE Bursa Malaysia Hijrah Shariah outperformed the FBM KLCI by 2.71% and 3.33% respectively.”

“However, over the long term (10 years), the FBM KLCI outperformed the Shariah index – but only 1.16%. By referring to the broader equity and money markets, we can conclude there is some variance in the short-term period where the Shariah account may perform the conventional one. However, over the long term, their performance will be quite close to each other.” – Akmal Hassan, Managing Director of Asian Islamic Investment Management Sdn Bhd

“Since the performance of equity-based funds are cyclical, it will be a challenge for the EPF to ensure that its members, both in the conventional and Shariah accounts, receive the same amount of returns. Therefore, he says the EPF should diversify its Shariah-compliant investment account and invest in other asset classes to make sure it is able to absorb the market arbitrage.”

“Islamic funds outperform during a financial crisis, but it is not easy to outperform throughout the years. You cannot be expecting bear markets all the time. In fact, you also cannot expect the Islamic fund to go up during a bear market because the Islamic fund is about the real economy – it is about the season, weather, conflict, war, oil and gas. There is more than one factor that can make the market bearish.” – Datuk Dr. Mohd Daud Bakar, Founder and Group Chairman of Amanie Advisors Sdn Bhd

The Bottom Line

As a Muslim, our investment objective is to only invest in Shariah-compliant assets. When we are given an option of choosing between a conventional or Shariah account, the later should be our choice. At this first stage, it is more about compliance than performance.

We would not want to be included amongst those who hoard wealth without taking into account the means of obtaining it. [2]

The Prophet Muhammad (ﷺ) reminds us, narrated by Abu Huraira: the Prophet said, “A time will come when one will not care how one gains one’s money, legally or illegally.” [3]

EPF has also appointed a Shariah advisory committee (SAC) to advise, supervise and regulate all matters relating to the scheme. EPF stated in its website that a Shariah advisory committee (SAC) has been formed to oversee all operational, investment and governance aspects of Simpanan Shariah. The SAC will also recognise Shariah investment products regulated or approved by Bank Negara Malaysia and the Securities Commission Malaysia. [4]

The second stage is about performance. Will the Simpanan Shariah be able to offer more or less the same returns that the conventional account gives? Which is more important – performance or compliance?

We would say that both; compliance and performance are important. Thus it is also worth mentioning that it is crucial that EPF has to balance between the two and ensure that its members, both in the conventional and Shariah accounts, receive the same amount of returns. These members will be convinced if the Shariah-compliant account performs as well as its conventional peer.

Datuk Dr. Mohd Daud Bakar commented in The Edge Malaysia [5] that “the investment team of Simpanan Shariah has the required expertise to manage the expectations of members and beef up performance. As a prominent Islamic finance scholar, he admits that although there could be some challenges with regards to asset selection and allocation, but it is up to EPF’s management to consider what is the best for its members. Datuk is of the view that the members should engage with the management to ensure it is not only Shariah-compliant but also a good performing account at the end of the day.”

Speaking on investment and fund management, when enough or more people switch to the Simpanan Shariah, the scheme could enter into a trend that could be able to drive its own direction and sustain itself for many years. Of course, it requires support from us to take a proper action, InshaAllah.

We would end this article by quoting one verse in Al-Qur’an, Allah says: “Satan threatens you with poverty and orders you to immorality, while Allah promises you forgiveness from Him and bounty. And Allah is all-Encompassing and Knowing.” [6]

Allah knows best!


1. The Edge Malaysia, the Week of August 1 – August 7, 2016.

2. Zaharuddin Abd Rahman, Money You & Islam.

3. Related by Al-Bukhari.

4. EPF: Registration For Simpanan Shariah Starts 8 August 2016, http://www.kwsp.gov.my/portal/en/news-listing- page, viewed on August 2, 2016.

5. The Edge Malaysia, the Week of August 1 – August 7, 2016.

6. Al-Baqarah 2:268.