More poor retirees with depleted EPF savings, warn economists


THE majority of Malaysian workers are looking at the prospect of retiring poor with very little savings to sustain their old age, economists warned.

There is a need for a social protection floor to be introduced now, they said, amid concerns that up to 46% of the Employees Provident Fund (EPF) members have less than RM10,000 in their accounts.

Economist Dr Nungsari Ahmad Radhi warned that the lack of pension and retirement fund adequacy is a time bomb, if not properly managed given a changing demographics.

“The balance sheet for these employees have been made worse and the outlook for when they retire has worsened.

“A major safety net for employees has been made worse. There should be a policy to repair this in the longer term via some transfers or preferential tax treatment to the affected group,” he told The Malaysian Reserve (TMR).

Nungsari had raised objections to the government’s decision to allow EPF members to withdraw savings, even for economic relief during the pandemic.

“It was a very bad and irresponsible decision. Obviously, it will be the low-income employees, who have low savings at the EPF, who will withdraw and be affected the most in the future,” he said.

The EPF said last week that up to 46% of its members below the age of 55 have less than RM10,000 in their accounts, raising concerns on the sufficiency of their funds upon retirement.

The fund also said that the members’ basic savings threshold (RM240,000 at age 55) dropped from 36% to 27% as a result of Covid-19-related withdrawals to supplement incomes during the crisis.

Khazanah Research Institute (KRI) recent report, “Building Resilience: Towards Inclusive Social Protection in Malaysia”, revealed that in 2019, only half of the total 14.6 million EPF members actively contributed to their accounts.

From the total active members of 7.6 million, registered members in voluntary schemes (0.2 million in 2019) made up a dismal 2.7%.

“For those with EPF accounts, as highlighted above, most of them do not have adequate retirement savings to last for long,” the KRI report stated.

In the same report, KRI said social protection for old-age income security from contributory schemes remains limited in coverage, as well as adequacy.

These issues prevail as the EPF contributory scheme is only mandatory for workers with clear employers, it said, while the persistence of low wages and irregular work minimises the ability of workers to contribute sufficiently to their retirement savings.

As it is, KRI said, Malaysia’s population has been ageing at a very high pace. In 2020, Malaysia had already become an “ageing nation”, where more than 7% of the population is aged 65 and above.

By 2044, the country is set to become an “aged nation” when those aged 65 and above exceed 14% of the total population.

Rapid ageing poses a challenge to Malaysia’s socio-economic policies, including those related to the labour market, income security post-working age, as well as health and old-age care. Meanwhile, economist Dr Muhammed Khalid said it is not unexpected that EPF is very concerned about the retirement security of its members.

“It is not shocking that EPF said nearly half of the members below the age of 55 have less than RM10,000 in their account.

“Data showed that due to the post-Covid-19 related withdrawals, median savings of the B40 (bottom 40% group) in EPF is just slightly RM1,000 and median savings of the M40 (middle 40% group) is about RM25,000. Majority of Malaysian workers will retire super poor,” he said.

Muhammed said that was the reason why many economists warned against allowing EPF members to withdraw their savings.

“It is simply wrong and irresponsible to ask people to exhaust their savings.

“What do we do now to prepare for the influx of poor retirees in the very near future? We must start planning for the universal old age pension,” said the MD of research outfit DM Analytics.

KRI also underscored the need for a universal social pension to provide basic old-age income security.

“We propose this to be delivered via a contributory social insurance model where contributions are made by not only workers and employers, but also shared by the government for working-age sub-groups such as homemakers, unemployed individuals and workers with informal and non-standard employment,” it said.