EXPERTS recommend that the government raise the mandatory retirement age and create new sources of income for retirees to replenish the Employees Provident Fund (EPF) savings that were withdrawn during the Covid-19 epidemic.

EPF recently said the withdrawals that were allowed via various schemes during the crisis had left only 3% of contributors with sufficient savings to retire on.

EPF chief strategy officer Nurhisham Hussein said the i-Sinar, i-Lestari and i-Citra withdrawals had caused many under-50 members to have critically low savings.

Malaysian Institute of Economic Research research head Dr Shankaran Nambiar said the issue of depleted retirement savings had been building up over the years.  

“Earlier, the problem was due to the fact that people used up their EPF savings within three years of retirement, a totally unsatisfactory state of affairs. Now, it is much worse,” Nambiar told The Malaysian Insight.

“We should also keep in mind that the household debt is at unacceptably high levels, having reached about 90% of GDP (gross domestic product) and now hovering slightly below that figure.”

He said there was an urgent need to review the country’s social protection framework.

Among the mitigating measures that could be taken included raising the mandatory retirement age as the country heads towards becoming an ageing nation, he said. The current mandatory retirement age is 60.

“The government should also look at introducing basic income for those above the retirement age,” Nambiar said.

“To cut the burden of operating expenditure, the government can put all future public servants on a non-pensionable scheme and make a minimal income payable to all Malaysians who have crossed the mandatory retirement age.

“This will benefit not just those who do not have EPF savings but also those who have never had an EPF account and face the challenge of funding their remaining non-working years.”

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid told The Malaysian Insight that one has to look beyond the EPF to resolve the issue of workers not having enough retirement savings.

“I think in the grand scheme of things, EPF should not be the sole party to ensure that Malaysians have sufficient savings when they retire,” he said.

“Yes, there will need to be improvements to the processes in respect of the withdrawal schemes and the investment returns but these have always been issues.

“So, we may have to look beyond EPF in order to address these issues. There is the wage factor that needs to grow faster and in this instance, the focus should be on real income, that is, after taking into account the cost of living.”

He said there was a need to create quality jobs and at the same time, maintain purchasing power.

“There are issues of inflation and rising cost of living that require full attention,” he said.

Afzanizam said financial literacy among Malaysians remained a concern.

“We have been hearing that some Malaysians are unable to scrape together RM1,000 in the event of an emergemcy.  That goes to show that the level of financial literacy warrants careful analysis,” he said.

EPF recently said it was focusing on assisting its members to rebuild their retirement savings following the introduction of withdrawal facilities to tide the contributors over the epidemic and consequent economic crises.

“These withdrawals, namely i-Lestari, i-Sinar and i-Citra, resulted in RM101 billion being disbursed to more than 7.4 million members, which is close to half of the number of EPF members,” it said.

EPF said the drop in savings of Bumiputera members was particularly worrying, accounting for 78% of the withdrawal applicants.

As a result, 4.4 million or 54% of Bumiputera members have less than RM10,000, and two million or 25% have less than RM1,000 in their EPF accounts.

Higher monthly contributions

Ahmad Iqbal, a 35-year-old civil servant, said the obvious way to refill EPF savings was by increasing monthly contributions.

Currently, the employer contributes 12% of the worker’s salary and the worker, 11%, to the retirement savings fund.

Ahmad said the government could offer employers tax exemptions for contributing more.

Tengku Mohd Azmin Tengku Azhar said contributions could be raised for two years to make up for the withdrawals effected by those who had lost their jobs or had salary cuts.

Insurance agent Dzulhilmi Ismail suggested that the workers contribute more.

“Contribute on your own, just add RM50 or RM100 every month. We need to remind the public of the importance of our retirement fund,” he said.

“The government must initiate a campaign to encourage contributors to save more.”

Nurul Aina Kamaruzaman, 31, agreed contributors must do their part.

“I agree that companies should increase their contributions, but we can also play our part. We can always add more money into our account,” said the FoodPanda worker.

“Give people a choice. Let them decide how much they would like to add to their account so that it will not burden them too much.” – November 3, 2021.