PUTRAJAYA must come up with a special Employees Provident Fund (EPF) loan scheme to help needy contributors overcome financial hardship, said economists.

They said another long-term measure to top up accounts is to increase salaries, including the minimum wage.

They agreed it was a mistake to have allowed early EPF withdrawals, which has left many contributors with less than RM10,000 in their savings.

Dr Barjoyai Bardai of Universiti Tun Abdul Razak said the EPF should come up with a special scheme to allow contributors to take loans from the retirement fund.

He said both EPF and eligible contributors would benefit from the scheme.

“For me there needs to be a long-term plan. We made a mistake by allowing the special withdrawals on four occasions during the pandemic not realising how little was left for contributors.

“The average contributor amount is only RM7,000 and to address this retirement crisis is not easy. Some contributors do not have enough time. If they are 50 years old, they have 10 years to go, if they are young they have some time.

“My suggestion is that EPF come up with a special loan scheme focusing on those in need. One may need RM250,000 to retire, this is a comfortable amount but RM150,000 to RM 200,000 should be okay.

“Give out loans at RM50,000 to RM100,000 and set the return rate at 5% per annum, the interest rate at 2% per annum. There is a 3% compounding effect from EPF dividends.

“In 15-20 years (of working and paying back the loan), one would have RM100,000 upon retirement. With that money, although not as much as RM200,000, a person can use the money to start a business.

“The loan is safe for both EPF and contributors because if the contributor does not pay, EPF will get the money back from their monthly deduction,” he said.

On Saturday, EPF chief operating officer Amir Hamzah Azizan said the RM145.5 billion special withdrawals were bigger than the individual gross domestic product (GDP) of some 100 countries and territories.

“That is how much we have taken out,” he said during his presentation of the fund’s 2022 financial performance.

He noted that Bumiputera and Indian members below the age 55 saw a higher erosion of saving levels due to multiple pandemic related withdrawals.

As of April 2020, the median savings of Bumiputera members was RM15,500 but that has shrunk to RM4,900 as of December 2022.

The Indian community saw a 40% drop in their median savings from RM25,700 to RM14,900.

The Chinese on the other hand only saw a 1% drop in their median savings from RM45,800 to RM45,200.

The median savings for the Middle 40 shrunk by 34% from RM30,113 to RM19,926.

The median savings for the Bottom 40 plunged 76% to RM577 from RM2,434. There were 5.2 million members in the M40 and B40 groups respectively.

Increasing wages

Putra Business School academic, Dr Ahmed Razman Abdul Latiff said the government must increase the minimum wage to allow more savings in EPF.

He, however, noted that it was not easy to just increase the salary of an ordinary worker without them acquiring special skills or knowledge.

“Giving out cash aid like we used to do is not solving the problem. It only solves people’s problems for a day. The way is to increase salaries, and by doing so, it will increase EPF contribution.

“But to increase salaries, one must acquire specific skills and expertise. For example, let’s say a foreign investor opens a factory and only hires low-skilled workers. We must not allow that to happen.

“We must have a policy that they hire and transfer knowledge to our workers.

“At the end of the day, we can produce skilled workers and not just low minimum wage labourers,” said the academic.

He added that the government must also empower small and medium enterprises in the automotive and digital sector in order to produce more skilled workers.

“We need more manpower in these sectors. If the government focuses on these sectors, skilled workers can be hired with a higher wage level and they can contribute more to EPF.

“Once they retire, they will have enough savings. We solve the retirement crisis and at the same time EPF gets more funds,” he added.

For 2022, the EPF declared a dividend rate of 5.35% for conventional savings for 2022, with a total payout amounting to RM45.44 billion as well as a 4.75% for shariah savings, with a payout amounting to RM5.7 billion.

In total, the retirement fund will pay out RM51.14 billion in dividends. –  March 7, 2023.