Eight out of 10 EPF members will retire in poverty

Economists warn the short-term policies to cause more harm in near future

by AZREEN HANI / pic by MUHD AMIN NAHARUL

EIGHT out of 10 Employees Provident Fund (EPF) members will retire in poverty as the median savings for the bottom 40% income group (B40%) of the members was reduced by 61% to RM1,000 and the median savings for the middle 40% income group (M40%) fell 17% to RM24,000.

This would translate to having only RM4 a month to spend for 20 years for the B40.

Experts told The Malaysian Reserve the government should no longer consider the calls to allow depositors to withdraw from the EPF anymore.

Instead, they are calling for sufficient assistance with better fiscal management that focuses on the poor and vulnerable.

“There are no economic and moral arguments for allowing the depositors to withdraw from EPF. The government should provide sufficient assistance and not dig into the rakyat’s savings,” prominent economist Dr Muhammed Abdul Khalid said.

“Because of the reckless decision to allow the withdrawal last year, many of the depositors will face a bleak future. It is immoral if the government forces them to use whatever is left of their retirement savings to mitigate the fiscal problems,” he added.

Muhammed warned that the short-sighted policy will haunt Malaysia in the near future as it is currently an ageing nation and expected to be an aged nation by 2030.

This, he said, will have a significant fiscal impact on the government and most likely to be financed by future generations.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz had said EPF withdrawal is not the solution for present challenges, noting that in 2030, 15% of 5.6 million of the population will be senior citizens.

To date, EPF members were allowed to tap into their retirement savings through the i-Lestari, i-Sinar and i-Citra programmes, with the withdrawals totalling RM101 billion.

Prime Minister (PM) Datuk Seri Ismail Sabri Yaakob also rejected calls for the withdrawal, which drew criticisms among Umno leaders.

Another economist, Dr Nungsari Radhi said a 30-year-old who withdrew RM10,000 last year actually lost almost RM50,000 that he or she would have had at retirement when reaching 60 years old. This calculation is made based on the assumption of 5.5% dividends.

“The thing about EPF savings is its compounding effect over a period of time, over 30 years. That’s why their balances need to be repaired while they are still working,” he said, noting that there is a hole from their past working life that needs to be filled up.

“Those who still advocate this after over RM100 billion withdrawn the last two years are worse,” he said.

The Solution?

“Spend better on the poor and vulnerable,” Muhammed said, noting that from the total of RM530 billion stimulus, only 17% or RM92 billion is a direct fiscal injection from the government, equivalent to 6% of GDP compared to 37% of GDP announced by the government.

“We do have the money, but the government is being wasteful, and not wise in managing the finances,” he said, citing the RM40 million to repair the unoccupied PM residence as well as luxurious cars purchased for Cabinet ministers as an example.

“Isn’t it better to use this money to fix the houses of the flood victims instead? There are many ways to cut expenses, and we can start with leadership by example, and if need be, reduce the number of Cabinet ministers,” he added.

He also questioned the 5G award to Ministry of Finance-owned company Digital Nasional Bhd (DNB), saying that the deployment itself is a great opportunity for the government to earn much-needed revenue.

“By creating another telco firm, the rakyat stand to incur a huge debt of possibly up to RM20 billion by 2030. Almost RM500 million was given to DNB for operations recently. This is a waste, this money can be given to flood victims, to the people who lost their jobs,” said Muhammed.

Nungsari said the government should give those with savings below a certain amount some tax credits into the future until the amount is made up.

“If they are not eligible to pay tax to enjoy that benefit, then there should be transfers into their accounts,” he said.