Destroying the financial future of the poor

THE Employees Provident Fund (EPF) estimates that the minimum savings needed for retirement is RM240,000, which is based on the calculation of RM1,000 per month for 20 years. Before Covid-19, 67% of those registered with EPF did not meet that minimum, and 50% of contributors above the age of 54 have savings below RM50,000. Clearly, Malaysians did not have enough savings for retirement even before the pandemic. 

Through the i-Lestari, i-Sinar, and i-Citra schemes, EPF contributors are now allowed to withdraw their savings to face the current economic challenges caused by the pandemic. This is especially the case with the low-income group. 

Recently, the Chief Executive Officer of EPF stated that 6.3 million, or 42% of EPF members, have less than RM 10,000 in their Account 1, while 9.3 million people have less than RM 10,000 in their Account 2. Account 1 is meant to be used as retirement savings, whereas Account 2 can be used for house purchases, children’s education, and medical expenses.

Based on the current trend of withdrawals, it is very probable many contributors will end up losing their EPF savings, as many are forced to forgo money that they have saved up for their future to meet present critical needs. 

Is this the best way for the government to help those in need? 

The current approach of allowing members to withdraw from their EPF savings leaves people without a safety net for their retirement and for emergency needs. Suicide rates have also been on the rise as many lack the financial and emotional support needed to bear through the current crises.

The present social protection scheme and lack of assistance to families in need are grossly inadequate. There is an urgent need to reform our social protection and financial assistance schemes for vulnerable members of the society to ensure that they have access to at least a minimum standard of living even during a crisis.

FOMCA strongly supports the need for financial planning and financial management of all consumers. Thus, we have continuously emphasised the need for financial literacy programmes. The current scenario of using retirement savings for current urgent needs would have a devastating impact on the future financial needs of the people. 

FOMCA strongly believes that adequate financial support should have been given directly to those in need. Forcing people to use up their EPF savings is not a solution, but is an indication of the inadequacy of social protection programmes. It also does not account for the future wellbeing of the people, particularly the poor and vulnerable, as well as those not covered by the EPF scheme, such as hawkers and contract workers. 

Therefore, FOMCA urges the government to provide sufficient financial aid, especially to those who have lost their jobs or have had their incomes reduced.  

* Paul Selva Raj reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.

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