Savings For Retirement - Malaysia

The statistics from the Employees Provident Fund (EPF) are alarming. Sixty-eight per cent of its members aged 54 in December 2014 have less than RM50,000 in their accounts while 12 per cent have only between RM50,001 and RM100,000. 

That means a staggering 80 per cent of members have less than RM100,000 in retirement funds. This is a disturbing fact, especially as the average life-span of Malaysians has increased to 75 years. It means a retiree having RM100,000 in his EPF account will live on only RM208 a month. 

Corporate life is becoming more challenging. Employment is becoming competitive, cost-sensitive and business-driven, resulting in more and more employees stretching their working hours to cope with job demands. In the Klang Valley, especially in Kuala Lumpur, it is the norm for a worker to be in the office for 10 to 13 hours. 

In short, employees spend more time in the office plus another one to two   hours commuting. With the changing and challenging landscape of the economy and employment, what is there in store for retirement planning? 

Retirement planning is critical, yet, most employees see this as a subject of least or no interest. Perhaps the increase in the cost of living plays a part. People are focused on monthly and short-term savings or financial goals. Another contributing factor is not having the time to plan or having any exposure to retirement plans. From the holistic perspective, employers or human resources managers play a crucial role in providing the platform for retirement planning. 

Generally, employers perceive retirement planning as something personal to the employees. Therefore, it has nothing to do with employers. But, is that true? Many employees consider EPF as the main and, for some, the only source of retirement funds. This mindset must change. Other retirement plans, such as the Private Retirement Scheme (PRS), unit trusts and those approved by the Securities Commission, are suitable long-term wealth accumulation schemes that should be shared with every employee. 

Nowadays, employer can also help employees plan for retirement by signing up for corporate retirement plans. The employer-based plans, such as PRS, should work well as additional funds for a better retirement plan for all employees. The Social Security Organisation (Socso) provides free medical treatment schemes for physical or vocational rehabilitation and financial assistance to employees who have lost the ability to work due to accidents or diseases. 

Employees are not protected by Socso in all cases, more so during retirement. Therefore, health insurance is vital to cover unforeseen medical expenses. Medical cost is rising. In Malaysia, it is estimated to be at 10 per cent each year and is projected to continue to rise. HSBC Insurance Limited, London, disclosed that in 2012, treatment for kidney failure cost a minimum of RM150,000 and should medical inflation continue rising at the current rates, the same treatment may be as high as RM225,000 in five years.

Without adequate retirement planning and a decent insurance policy, medical expenses will wipe out the retirement money immediately! Employers must play the role of a strategic partner to employees. They should look at retirement planning as a subject of interest to both employers and employees as it is going to be a win-win situation. Good retirement plans have also become more potent retention tools, particularly to younger employees. 

Employers need to understand how important their roles are in advocating the benefits of retirement planning for employees and what they can do to encourage participation. Town hall sessions, group presentations or even exhibitions by wealth specialists is an ideal way to introduce retirement planning to employees. Wealth specialists should be seen as strategic partners to employers. However, we can still see employers treating the wealth specialists as their foes. 

Spending more than 12 hours in the office and working throughout his life time, a worker should be treated with dignity, with suitable retirement benefits to address this issue. Employers must play a significant role to reshape the social landscape of the employment scenario in Malaysia. 

The goal is to have a healthy, well-prepared and wealthy retirement scheme. The government should also encourage employers by giving tax incentives to address the larger issue of lack of retirement benefits among its working population. 

By: Syed Zulbakri, Syed Jemal Shah - Puncak Alam, Selangor