THE government’s move to increase the voluntary contribution limit to the Employees Provident Fund (EPF) to RM100,000 per year from RM60,000 will only benefit the higher income group, economists said.

They said it could be an effort by EPF to recoup the billions that were withdrawn from the retirement fund in the last two years, and it has left out a large segment of society who do not earn much.

More thought needs to be given to increasing the retirement savings of vulnerable groups, they said.

Sunway University economist Yeah Kim Leng said the move benefits only the rich.

“They (EPF) are targeting the super rich, some people only make RM60,000 a year,” Yeah told The Malaysian Insight.

He said the new contribution ceiling could affect private-sector funds.

“They are capturing money that ideally should be managed by private-sector funds,” he said.

“Contributors (who can afford it) can assess if the projected earnings and dividends are higher (with EPF) than unit trusts or other private funds and use their excess income to ‘invest’ in EPF if they want to.”

Given that the global financial market has taken a hit this year, Yeah said it remains to be seen if EPF can generate the same amount of dividend as it did last year.

For 2021, EPF declared a 6.1% dividend for conventional savings and 5.65% for shariah savings – beating the 5.45% (conventional) and 5% (shariah) declared in pre-pandemic 2019.

On whether this is a move to increase EPF’s funds, Yeah said the retirement fund is in fact flush with cash.

“It was garnering almost RM2 billion a month, and initially, there was concern about the over-concentration of funds in EPF… that it could become too large to be managed efficiently and to sustain high dividends. That could have changed of course, with its exposure to global markets and it needs more funds to manage when it is investing overseas,” he said.

Finance Minister Tengku Zafrul Abdul Aziz announced during the tabling of Budget 2023 yesterday that the EPF voluntary contribution ceiling will be raised.

He said this move would help increase people’s retirement savings.

EPF withdrawals during the pandemic have reduced the percentage of those who have achieved minimum retirement savings (estimated at RM240,000) from 36% in 2020 to 27% this year.

Through the i-Lestari, i-Sinar and i-Citra withdrawal schemes, RM101 billion was withdrawn from the retirement fund, leaving 6.1 million contributors with less than RM10,000.

Lower income group

Lim Kim Hwa, Penang Institute director and fellow in finance at University of Cambridge, said the move will not help those who have depleted their retirement savings.

“While the initiative to increase the ceiling is laudable as it provides an incentive to save for retirement, the segment of the society most severely underfunding their pensions are unlikely to be the segment that earns more than RM100,000,” Lim said.

“More thought needs to be channelled to those who have not recovered from the impact of Covid-19 and to those who do not earn much, such as the B40 group and some in the M40 group.

“The impact of inflation is likely to cause some in the M40 group to have a lower standard of living and hence, lower amounts for EPF contribution.” – October 8, 2022.