A 13 TO 20% rise in employer contributions to the Employees Provident Fund (EPF) is a significant leap of almost 54%.  The increase in the employer’s contribution rate will help to address the issue of low retirement savings among Malaysian workers. 

According to a survey conducted by the EPF in 2019, almost two-thirds of active EPF members aged 54 and under had less than RM50,000 in their retirement savings. This is far below the minimum RM240,000 required for a comfortable retirement.

On the one hand, raising employer contributions to the EPF could help to address concerns over inadequate retirement savings and promote greater financial security for employees. This could have broader social benefits, such as reducing the burden on government-funded retirement schemes and improving the overall wellbeing of the population.

On the other hand, a higher employer’s contribution rate could be challenging for the employers. It will increase labour costs, which could affect profitability. In addition, some employers might need to adjust salary structures to afford the higher contribution rate, which means less take-home pay for the workers.

A higher rate could also discourage employers from hiring new workers because of the the higher labour cost associated with the increased contribution rate. This could lead to a slowdown in job creation and economic growth in Malaysia.

Whether the hike is too much depends on various factors, including the state of the economy, the competitiveness of businesses, and the social welfare needs of the population. 

One of the main considerations is its impact on businesses, particularly small and medium-sized enterprises (SMEs). SMEs form a large portion of the Malaysian economy, and an increase in EPF contributions could have a big impact on their financial viability. The government will need to assess how businesses will be able to afford the increased contributions and how it might affect their competitiveness.

The policy could also impact current discussions and negotiations with regard to minimum wage in Malaysia. If employers are required to bear the added cost, they may have less room to raise salaries or implement minimum wage increases. 

However, it is important to note that higher EPF contributions and minimum wage increases are both important to ensure employees are fairly compensated and able to meet their basic needs. Both issues are also related to improving the economic welfare of the country, as higher wages and retirement savings lead to increased consumer spending and economic growth.

The sustainability of the hike is another important consideration. The EPF has an obligation to its contributors, and the government will need to assess whether the increased contributions are sufficient to support the fund’s future obligations while exploring other measures that can be taken to ensure its financial sustainability.

Public perception of the proposal is also a key consideration. The government will need to assess how the proposal is likely to be received by different stakeholders, including EPF contributors, businesses, and the broader public.

If the plan is implemented, the government will need to find a balance between the needs of employees, who would benefit from increased EPF contributions, and employers, who might struggle to bear the additional cost.

One option is to raise the contributions in stages rather than all at once. This will give employers time to adjust to the increased contribution rates and mitigate their financial impact. The government could also consider providing incentives or tax breaks for employers who comply with the increased contribution rates.

The government could also speak with employers and business associations to better understand their concerns and needs and offer solutions. By actively engaging with employers, the government could help to build support for the proposal and increase the chances of successful implementation.

The government could also explore alternative funding sources to support the increased EPF contributions. For example, they could consider redirecting some of the revenue from a new tax or the collection of unpaid taxes to support the EPF. This could help to alleviate the financial burden on employers.

In conclusion, the proposal to increase employer contributions to the EPF to 20% is a complex policy issue that requires careful evaluation. While the proposal could improve the financial security of EPF contributors in retirement, the government will need to carefully weigh its benefits and costs. Ultimately, any decision should be guided by the goal of sustainable economic growth and social welfare. – May 11, 2023.

• Dr Paul Anthony Mariadas 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.