NEWS that at least 30% of Employees Provident Fund (EPF) contributors have used up their savings in the fund through the i-Sinar facility and have only RM100 left is a sign of larger problems, economists and analysts said.

Some point to the shortcomings of the EPF system, while others said it is slow wage growth that results in the amount of EPF savings not reaching the required level for a decent retirement.

Tricia Yeoh, Institute for Democracy and Economic Affairs (IDEAS) chief executive, said EPF alone is not the best solution for long-term management for one’s retirement.

“It’s already known that 70% of the EPF members who withdrew at the age of 55 had spent their retirement funds within 10 years.

“Malaysia should consider other options besides the EPF and government officials’ pensions to ensure that the people have better security in their retirement years,” Yeoh told The Malaysian Insight.

For one, Malaysia could do with a nationalised life insurance scheme similar to Singapore’s. This is because medical-related expenses account for the most of a retiree’s expenses in Malaysia.

“Our country has discussed this for many years, but has not successfully implemented it.”

For a stronger retirement safety net, the government should also review its tax sources, Yeoh added.

“Our tax base is not sufficient. IDEAS has previously recommended the implementation of a capital gains tax (which Malaysia does not have other than on property).”

Malaysians also need to improve their financial management capabilities and social savings, she said.

“Our household debts are one of the highest in Asia. We should drop the culture of house ownership as buying a house means being tied up with 30 years of debt.

“If you don’t have such a high debt, then EPF funds may be enough to support retirees.”

Yeoh also suggested financial savings packages specially designed for the B40 and M40 communities.

“For example, it might be savings of RM50 or RM100 a month, not huge monthly savings that they can’t afford.”

The i-Sinar facility was announced last year as part of relief measures to help those whose incomes were affected by the Covid-19 pandemic. In December, the criteria for application was opened to a wider pool of EPF contributors, or 8 million members.

Early this month, however, EPF CEO Tunku Alizakri Raja Muhammad Alias said that withdrawals through i-Sinar have seen some 30% or 1.6 million EPF members with only the required minimum of RM100 left in their Account 1. This account is meant for retirement funds.

He also expressed concern that withdrawals from Account 2, meant for housing, medical needs and education, will also be depleted.

He said EPF will continue with more activities and awareness campaigns to teach members the importance of retirement savings.

Universiti Tunku Abdul Rahman economics assistant professor Wong Chin Yoong believes the larger problem lies with basic salary levels and wage growth.

With low wages to begin with, it is no surprise that the i-Sinar withdrawals have resulted in depleted accounts.

“In 2019, half of Malaysians had a basic salary of less than RM2,000, so the retirement or pension savings at retirement age is only RM50,000.

“When half of the people don’t have a salary of RM20,000 in a year, the current situation is understandable. The problem is not the system but that the base salary is too low,” said Wong.

“These EPF funds should be for retirement, pensions should not be touched until retirement. But because of i-Sinar, the question of sustainability has arisen.

“It is not a system issue. The problem is a policy issue, and the government has reached too far,” he added.

He has four suggestions to optimise the overall retirement funds savings system, which is to:

• Raise the basic salary for new market entries;
• Halting the i-Sinar facility as soon as the pandemic situation stabilises;
• Use public funds for those with insufficient pensions; and
• Extend the retirement age.

“After the pandemic stabilises, don’t let savings for retirement purposes be used for other purposes. Only by expanding EPF’s assets, can it be sustainable and used for more investments, and hence last longer.”

Finance Minister Tengku Zafrul Tengku Abdul Aziz announced recently that as of March 14, the i-Sinar facility has approved 5.94 million applications, with a total withdrawal of RM52.48 billion.

And as of March 12, the EPF approved a total of 5.23 million members’ applications under the i-Lestari, which allows withdrawals from Account 2. These amounted to RM19.45 billion.

EPF’s total investments for pandemic-stricken 2020 grew 7.9% to RM998 billion, with a total market value of RM1.02 trillion.

It was able to announce a 5.2% dividend for conventional savings last year despite the pandemic, owing to diversification including its investments in overseas assets. – March 29, 2021.