Simpanan Shariah does not provide minimum dividend guarantee - EPF

The Employees Provident Fund's (EPF) newly-launched 'Simpanan Shariah' scheme will be guided by a comprehensive shariah governance framework to ensure its operations and investment adhere to shariah investment parameters.

The EPF in a statement said the parameters would be endorsed by the Shariah Advisory Committee (SAC), comprising no fewer than three members who are qualified in shariah or possess shariah knowledge and experience in banking, finance and law or other related discipline.

"As part of the EPF's commitment to corporate governance, the SAC will prepare and issue a report on shariah compliance of the 'Simpanan Shariah' every financial year," it said.

The SAC is currently chaired by Prof Dr Mohamad Akram Laldin, Executive Director of the International Shari'ah Research Academy for Islamic Finance (ISRA).

The committee comprises Prof Dr Zaharuddin Abd Rahman of the International Islamic University Malaysia's School of Economics and Management Science and Dr Aznan Hasan of the Institute of Banking and Islamic Finance.

The 'Simpanan Shariah' investment strategy will be guided by the Strategic Asset Allocation (SAA) objectives of preserving and enhancing the value of members' retirement savings.

The investment abides by ethical guidelines and investment policies which, among others, prohibit the fund from investing in sectors that promote gambling, manufacture and distribute military weapons, produce and promote alcohol and promote and distribute adult entertainment.

The EPF also does not have exposure in countries that do not have diplomatic ties with Malaysia.

The fund said its 'Simpanan Shariah' scheme is eligible to all EPF members regardless of religion, race and nationality, adding it will provide an option for their accounts to be managed and invested according to shariah principles.

It said the account was introduced following a public consultation on improvements and enhancements to the EPF scheme held in April last year which showed 71 per cent of the respondents agreeing to the introduction of a shariah-compliant retirement savings option.

However, in contrast to the conventional account which guarantees a minimum dividend of 2.5 per cent annually, it said the 'Simpanan Shariah' does not provide any minimum dividend guarantee but a return based on the actual performance of the shariah-compliant investment.

Another difference is the use of Akad Wakalah in the management and investment of the Shariah Saving, whereas Conventional Savings are not subject to any akad or agreement.

According to a concept paper by Bank Negara Malaysia's Islamic Banking and Takaful Department, Wakalah refers to an agency's contract to perform a particular task in matters that may be delegated, with or without imposition of a fee.

If a fee is arranged at the time of entering into the wakalah contract, called "wakalah bi al-ujrah", the fee may be an absolute amount or a certain ratio of a certain amount or an amount that is linked to a benchmark, according to the concept paper.

Meanwhile, the EPF said members who choose to change to the 'Simpanan Shariah' scheme will not be allowed to revoke their decision and revert to Conventional Savings after the effective date.

EPF members can only choose one type of account, either Conventional Savings or 'Simpanan Shariah'.