Malaysia Retirement Under Threat

Malaysians’ inadequate retirement savings in the Employees Provident Fund (EPF) — which was further hit with pre-retirement withdrawals to cope with the financial impact of Covid-19 — could be a ticking “time bomb” for the ageing nation.

EPF contributors Poorer Before Retire - Some contributor falls into poverty at retirement or even before retirement because they don’t have the capacity to continue generating the kind of income they need. EPF’s calculations last year showed that only around 4 per cent of Malaysians can afford to retire. 

With 8.1 million Malaysians having withdrawn a total of RM145 billion from their EPF savings through four Covid-19-linked voluntary withdrawals between 2020 to 2022. This was not a financial problem for EPF itself and that the impact was more on EPF contributors’ savings level, especially those in the lower rungs.

EPF Assets - EPF itself had investment assets totalling more than RM1 trillion at the end of last year. Around 30 per cent of EPF members were in February 2021 reported to have almost emptied their whole savings in Account 1 (which they normally could not withdraw from before they turn 55), and that over half of EPF members aged below 55 had less than RM10,000 in EPF savings.

With EPF returning dividends of an average 6 per cent annually since 2011, Covid-19 withdrawals have resulted in an opportunity cost as contributors would lose out from the interest earned and that the early withdrawals from EPF make the poor poorer. EPF contributors had to use their own money to look after themselves during the lockdowns - many analyst claimed it was “irresponsible” and the “worst policy ever” implemented in the country.

The EPF had set a minimum Basic Savings target of having RM240,000 by the age of 55, which would translate to RM1,000 per month for basic needs for 20 years, which is in line with the Malaysian life expectancy.

Under Savings - Over half of EPF members aged 50 to 54 have less than RM50,000 saved up in EPF, which would amount to less than RM208 per month for them to spend over 20 years in retirement.

Malaysia will be going from an ageing to aged to super-aged country within “a short span of 50 years. In the Current Population Estimates 2023 released this July, the Department of Statistics Malaysia (DOSM) said those in the age group of 60 and above account for 3.8 million or 11.3 per cent of the total Malaysian population in 2023, and that Malaysia is projected to be an ageing nation in 2030 when the age group of 60 and above surpasses 15 per cent of the total population.

Using international definitions of aging society based on the age group 65 and above, the World Bank in 2020 said Malaysia is already an “aging society” as of 2020 as over seven per cent of the population would be aged 65 and above, and that the country would be an “aged society” by 2044 and “super-aged society” by 2056 when that age group hits 14 per cent and over 20 per cent of the population.

Increasing the current retirement age of 60 years old and increasing employment among senior citizens could be used to improve savings levels. Hiking the retirement age has its limits, citing Williams as saying that those aged 40 and above would have “little time left to work” to save a minimum RM600,000 — an amount stated by EPF — which would be required to retire decently in Kuala Lumpur.

Passing Burden To Next Generation - The next generation will have to shoulder the burden if a high number of Malaysians retire without having enough savings. The family system has started to break down as people are having fewer children.