By Khairul Khalid
A proposed amendment to the Retirement Fund Act 2007 is causing a stir, not least because it seeks to remove Bank Negara’s involvement in the RM112 billion pension fund KWAP.
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Why is the government trying to remove Bank Negara Malaysia from oversight of a RM112 billion pension fund? The move is part of controversial new amendments proposed for the Retirement Fund Act 2007.
Or is it Bank Negara which is trying to remove itself? If so, why?
Among other things, the amendment bill is seeking approval to remove Bank Negara’s representative from the investment panel of Kumpulan Wang Persaraan Diperbadankan (KWAP) or Retirement Fund Inc.
Rafizi Ramli
“It will have serious implications. That’s where investment decisions are made,” said Pandan member of parliament (MP) Rafizi Ramli to KINIBIZ.
The opposition leader firmly believes that the bill should not be tabled.
“It will remove the scrutiny of Bank Negara (over KWAP). There will be no check and balances. This would allow KWAP to make more risky and questionable investments,” said Rafizi at a press conference after the amendments were tabled.
However, according to CEO of KWAP Wan Kamaruzaman Wan Ahmad in an interview in StarBiz recently, the removal is at the behest of Bank Negara itself to avoid conflict of interest due to the fact that it is a regulator and should not be involved in KWAP’s investments.
Currently, KWAP is managing a fund size of about RM112 billion and is looking to increase that to RM120 billion by the end of this year.
Although the explanatory notes in the bill state that it seeks to remove the representative of Bank Negara from the board, Rafizi clarifies that the actual amendments that have been discussed are indeed to remove Bank Negara from the investment panel.
The related clause in question is as follows, as per the amendment bill:
Clause 5 seeks to amend paragraph 7(2)(b) of Act 662 to remove the representative from the Central Bank of Malaysia as a member of the Board and to increase the number of persons to be appointed by the Minister under paragraph 7(2)(e) of Act 662 from three persons to four persons who could be appointed from the public or private sector provided they should have experience and expertise in business, investment, banking or finance.
KWAP’s main remit is to assist the federal government in funding the pensions of public servants. It is almost similar in function to Employees Provident Fund (EPF) that provides retirement benefits for private and non-pensionable public sector employees.
KWAP manages contributions from the federal government, statutory bodies, local authorities and other agencies. It also administers, manages and invests the fund in equity, fixed income securities, money market instruments and other forms of approved investments.
Nevertheless, KWAP is still not a full-fledged pension fund just yet. Currently it is more of an investment arm, unlike EPF that also handles collection, withdrawal of retirement benefits as well as other value-added services for its members.
Wan Kamaruzaman further explains in the StarBiz interview that the proposed amendments are meant to steer KWAP in that direction (to be a full-fledged pension fund) and that it plans to collect a fee for managing the payments of pension to its members.
Currently, KWAP only manages the pension funds and assets but does not administer payments and assume pension liability. The rate of contribution of pensionable public servants is 17.5% of their basic salaries.
The Retirement Fund Act amendment bill, initiated by the Ministry of Finance (MOF), is also seeking to increase the number of persons appointed by the finance minister from three to four, thereby replacing the central bank’s representative with an appointee by the finance minister.
The amendments were tabled for its first reading in Parliament last week. It is still being debated and scheduled for a second reading next month.
KINIBIZ has requested for an interview with KWAP but there has been no reply to phone calls and emails.
KWAP was established in 2007 to replace the repealed Pensions Trust Fund Act 1991 (Act 454) that was enacted to assist the federal government in funding its pension liability.
The Pension Trust Fund received a RM500 million launching grant from the federal government in 1991 and was administered by the Pensions Trust Fund Council with the Accountant General of Malaysia.
Prior to 1979, pension contributions collections were the responsibility of EPF, and subsequently other government agencies such as the Public Service Department, Treasury Malaysia and Accountant General’s Department. Upon its incorporation in 2007, KWAP took over.
As of September 2014, there are 511 contributing employers and 168,584 members registered with KWAP. Pension contributions to KWAP received between Jan 1 and Sept 30, 2014 was RM2.24 billion, which includes RM1.51 billion from the government and RM724.81 million from the employers’ contribution.
KWAP’s portfolio, apart from equities and other investments, now also include multibillion property deals locally and abroad. According to Wan Kamaruzaman, it is also planning to go into the construction industry.
KWAP has also been indirectly embroiled in the controversy surrounding strategic state fund 1Malaysia Development Bhd (1MDB) that is now saddled with over RM40 billion debt.
In 2011, KWAP provided a RM4 billion loan to SRC International, which was then a subsidiary company of 1MDB.
SRC has since been wholly absorbed by the MOF and the loans, guaranteed by the federal government, have been wiped off 1MDB’s accounts.
With the controversy of 1MDB’s RM42 billion debts still raging, the proposal to remove Bank Negara from KWAP’s investment panel has caused major concerns over issues of corporate governance and regulatory oversight.
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