Workers again are the VICTIMS of government when their social security is sacrificed to 'help' the stimulate the Malaysian economy. Workers have to use their own money and spend more to revive the economy...but some companies are getting discounted electricity...and others.
Best the government just give workers money, say RM100 - RM150 monthly to spend and help motivate the economy?
Best the government just give workers money, say RM100 - RM150 monthly to spend and help motivate the economy?
There continues to be a major concern amongst many about livelihood and welfare of Malaysian workers especially when they get old and cannot anymore find jobs or income sufficient to sustain their livelihood.
The minimum contribution rate under the Employees Provident Fund (EPF) will be cut from 11 per cent to 7 per cent from April 1 until December 31
With the announcement of the interim Prime Minister, that employee EPF/KWSP contribution is reduced from 11% to 7%, that is a 4% reduction, besides the impact on long-time social security, even a Minimum wage worker of RM1,100 will lose roughly about RM32 per year - because if the money is not in your EPF account, you do not earn dividends. If your income is higher, then you lose much more..
RM1,100 - Now will have RM44 more to spend,and not save in EPF for your old age.RM2,000 - RM80RM3,000 - RM120RM4,000 - RM160
Well, since EPF gives out dividend of about 6%, because of this reduction, an earner of RM1,100 will also lose about RM31.68 per year. [No money no dividend]
What the government should have done if they wanted workers to have more money to spend to stimulate the economy, the government should have given workers direct financial aid, maybe RM100 or more every month, for all workers or maybe just workers earning lower income, maybe RM3,000 or more. This data could easily be obtained from EPF records for local workers, and other records some with government agencies or even employers themselves. Maybe this aid should also be extended to currently unemployed workers, and also self employed.
After all, did not the government give monies or 'monies worth' to companies and others, including the reduction of electricity Bills, removal of service tax, etc..
An example would be 'Temporary six months discount of as much as 15% for electricity bills for hotels, tourism agencies, airlines, and shopping centres'(Star, 27/2/2020).
The government could have also cut workers electricity bills, water bills and phone bills up to RM100-150 per month. Then workers will have more money to spend - that is what the government want - make more money available for spending.
Many Malaysian workers may plunge intp poverty after retirement .. There is not enough money in EPF savings to sustain almost 68% beyond 4 1/2 years, even shorter now as cost of living continues to rise...After that what? Do they all end up in absolute poverty and become homeless just like what is happening now in USA? Or are the poor workers expected to work until they die - NO RETIREMENT for the poor...is that what the government wants?
What the government should have done if they wanted workers to have more money to spend to stimulate the economy, the government should have given workers direct financial aid, maybe RM100 or more every month, for all workers or maybe just workers earning lower income, maybe RM3,000 or more. This data could easily be obtained from EPF records for local workers, and other records some with government agencies or even employers themselves. Maybe this aid should also be extended to currently unemployed workers, and also self employed.
After all, did not the government give monies or 'monies worth' to companies and others, including the reduction of electricity Bills, removal of service tax, etc..
An example would be 'Temporary six months discount of as much as 15% for electricity bills for hotels, tourism agencies, airlines, and shopping centres'(Star, 27/2/2020).
The government could have also cut workers electricity bills, water bills and phone bills up to RM100-150 per month. Then workers will have more money to spend - that is what the government want - make more money available for spending.
Many Malaysian workers may plunge intp poverty after retirement .. There is not enough money in EPF savings to sustain almost 68% beyond 4 1/2 years, even shorter now as cost of living continues to rise...After that what? Do they all end up in absolute poverty and become homeless just like what is happening now in USA? Or are the poor workers expected to work until they die - NO RETIREMENT for the poor...is that what the government wants?
More than two-thirds (68%) of EPF members aged 54 had less than RM50,000 in EPF savings! With the household poverty line income at RM930 monthly, RM50,000 in savings will only last 4½ years. The bottom fifth of EPF members have average savings of only RM6,909!
Remember, that because the government encouraged, workers bought houses BUT many will have to pay their month housing loan obligations beyond the age of 60 or retirement? How will the lower or even middle income workers be able to do this - cannot pay, bank seize the house and sell it off...?According to EPF, 70% of members who withdraw their funds at age 55 use up their savings less than a decade after retiring. Most EPF savings are therefore not enough to stay out of poverty after retirement.
Why the compulsory savings for old age? Governments want workers to SAVE monies but the reality is that many do not have the discipline or ability to do the same. Many will spend today to 'enjoy' life, and do not think too much about the future. Many believe that they do not have to worry about 'old age' because their children will look after them - is that a belief that can be relied upon in the future.[Today many young people are buying houses, without even considering extra rooms that they may need if they have to house and take care of their old parents...]
There are 2 options to take care of workers in their old age or after they retire - a PENSION SCHEME(that will ensure some monthly income until they die, and thereafter until their spouse dies, or their children achieve maturity), or an 'Employment Provident Fund' scheme, which is the EPF/KWSP scheme.
Major problem with the EPF/KWSP scheme today is that the worker upon reaching a certain retirement age can withdraw ALL monies, and many finish this monies very fast and then there is no money for the remaining years they live. EPF also have revealed that majority of workers in Malaysia do not have enough monies to sustain their livelihood until death - most, even if they are disciplined and spend about RM800 per month, will only have enough money to last them for less than 5 years ...thereafter HOW?
The best solution is to develop a State run pension scheme that will provide not just workers but also others a steady income until death. But cost of living really increases and so even the EPF/KWSP savings would be able to sustain them for a shorter period... How much do you now need for a simple living?
Why state run, not some Insurance scheme by corporate entities? Simple, any corporate entities be it banks or insurance companies or other companies can always become financially incapable to undertake their obligations in later years - they could become 'bankrupt' or wound up, they could transfer assets to another 'new' company and not their liabilities. [Remember also what happened in the Malaysian Airlines].
Hence, the best solution is a government-run pension scheme, for it is almost impossible for any government to become 'bankrupt' and so workers future will be secure.
Why state run, not some Insurance scheme by corporate entities? Simple, any corporate entities be it banks or insurance companies or other companies can always become financially incapable to undertake their obligations in later years - they could become 'bankrupt' or wound up, they could transfer assets to another 'new' company and not their liabilities. [Remember also what happened in the Malaysian Airlines].
Hence, the best solution is a government-run pension scheme, for it is almost impossible for any government to become 'bankrupt' and so workers future will be secure.
Workers 'old age' security is being abandoned yet again by the government to 'stimulate' economy.. and this has happened just too many times in the past in Malaysia...but first time for new ALTERNATIVE Pakatan Harapan government, where many expected better..
Under the BN government, the allowing of workers to withdraw the monies in the EPF for certain purposes like buying house, etc was maybe the worst decision. This was not concerning future contributions - but existing savings, resulting in the reduction of old age savings maybe even by 50%.This EPF measure is not new and has been introduced in the past, with the government lowering contribution rates in 2001, 2003, 2009 and 2016. In 2016, for example, the government lowered employees’ contribution rate to 8% from March of that year until December 2017.
What this means is for workers to spend more money - but the government is not giving workers this money BUT is getting workers to use THEIR own monies which is meant for their 'old age security' NOW..more money to spend now. The government is NOT BOTHERED with workers.
2020 stimulus: Dr M says EPF rate cut to 7pc, RM150 more cash handouts under BSH
KUALA LUMPUR, Feb 27 — The minimum contribution rate under the
Employees Provident Fund (EPF) will be cut from 11 per cent to 7 per
cent from April 1 until December 31 this year with the aim of
potentially unlocking up to RM10 billion worth of spending by Malaysians
to help drive the economy that has been hit by the global Covid-19
virus outbreak.
But Interim Prime Minister Tun Dr Mahathir Mohamad also said
Malaysian employees “have the option to opt out from the scheme and
maintain their contribution rate” for their retirement savings at 11 per
cent.
In his announcement of an economic stimulus package today, Dr Mahathi
said Malaysians receiving cash aid under the Bantuan Sara Hidup (BSH)
scheme will receive a RM200 payment in March, two months earlier from
the earlier scheduled payout date of May.
They will also receive more cash aid, with an additional RM100 to “be
paid into the bank accounts of all BSH recipients in May 2020”.
“Subsequently, an additional RM50 will be channelled in the form of e-tunai,” he said.
Besides boosting local spending to help cushion the economic fallout
from Covid-19, Dr Mahathir said the government will also try to help
Malaysians earn more money through online selling and lower their living
costs.
He said Bank Negara Malaysia will provide RM1 billion of agrofood
facility at 3.75 per cent interest cost to promote food production
activities for both domestic and export demand, while the government
would allocate RM10 million to the Federal Agricultural Marketing
Authority to provide food storage facilities to help reduce food prices.
Dr Mahathir said 10,000 local entrepreneurs will also get grants of
RM1,000 each to promote the sale of their products on e-commerce
platforms, and with the Malaysian Digital Economy Corporation to get a
RM20 million allocation to transform Pusat Internet Desa into e-commerce
hubs.
Dr Mahathir noted these measures were necessary as the Covid-19
disease still had a significant impact on the global economy and
Malaysia despite it being well-contained locally.
Malaysia has had 22 cases of infections and zero fatalities as at
February 26. Twenty have fully recovered and been discharged, leaving
only two left hospitalised but in stable conditions.
The correct EPF deduction
In an immediate response, the EPF said the government’s decision to
reduce the minimum statutory contribution rate for employees to 7 per
cent will affect EPF members aged below 60, noting however that the EPF
rate by employees for those aged 60 and above will remain at zero per
cent.
“The move to reduce the statutory contribution rate is part of the
Government’s economic stimulus package intended to cushion the blow from
the economic fallout following the global Covid-19 outbreak,” the
retirement fund for employees in the private sector said in a statement
today.
EPF said employers are required to ensure the correct amount is
deducted from their staff’s salaries for the EPF contribution, further
noting however that Malaysian workers could opt to continue their
current rate of deductions for retirement savings.
The pension fund said employees may choose to maintain the current
contribution rate of 11 per cent by completing the form “Notis Pilihan
Mencarum Melebihi Kadar Berkanun KWSP 17A (Khas)” available on its website.
“This notice must be presented to employers to be submitted to the EPF,” it said.
EPF said those who require more information could visit any EPF
branch, or its website, or call the EPF Contact Management Centre at
03-8922 6000. - Malay mail, 27/2/2020
Pros and cons to lowering EPF contribution rates
Focus
Sunday, 23 Feb 2020
By DINA MURAD and RASHVINJEET S. BEDI
Yeah: Employees must be given option to choose whether to lower their EPF contribution rate or not.
ANY extra cash he takes home is a boon for this 35-year-old engineer who wants to be known only as Ganesh.
Pros and cons to lowering EPF contribution rates
Focus
Sunday, 23 Feb 2020
By DINA MURAD and RASHVINJEET S. BEDI
Yeah: Employees must be given option to choose whether to lower their EPF contribution rate or not.
ANY extra cash he takes home is a boon for this 35-year-old engineer who wants to be known only as Ganesh.
The
father of two young children in Kuala Lumpur – one of whom is in
kindergarten – says an additional RM200 would be beneficial.
“It might not seem like a lot but it provides some breathing space and some room to spend on my family,” says Ganesh, who is the household’s sole breadwinner with a take home salary of about RM6,000 a month after deductions.
While he can get by on that amount, some months can be a squeeze. So Ganesh is receptive to the suggestion that his mandated contribution to the Employees’ Provident Fund (EPF) be temporarily reduced.
Currently, employees contribute 11% of their salary to the fund
while employers must put in a minimum of 12% for salaries more than
RM5,000 and 13% for salaries lower than that.
Earlier this month, the Malaysia Retailers Association and Malaysia Retail Chain Association (MRCA) urged the government to temporarily reduce workers’ EPF contributions by 3% to mitigate business losses due to the current Covid-19 outbreak.
Similarly, the Malaysian Employers Federation expressed hope that the government will reduce employers’ and employees’ EPF contributions by 2% for the time being due to the novel coronavirus disease epidemic.
The proposals have received a mixed response from EPF members.
A promoter in a KL mall who identifies herself only as Zarina says that while she would be happy to have extra money in her pocket, she would likely save it for a rainy day anyway.
“We don’t know how long this outbreak is going to last and what impact it will have on the economy,” says the 29-year-old. “I’m more worried about whether I’ll still have a job at the end of the year or even in six months.”
For cleaner Siti Zubaidah Othman, who works in a shopping mall in Petaling Jaya, lowering her EPF contribution rate will not make a big difference to her monthly spending.
“My pay is low anyway and I’m struggling to make ends meet,” says the 41-year-old. “Coronavirus will come and go but my problem continues the same....”
This EPF measure is not new and has been introduced in the past, with the government lowering contribution rates in 2001, 2003, 2009 and 2016. In 2016, for example, the government lowered employees’ contribution rate to 8% from March of that year until December 2017.
Economist Prof Dr Yeah Kim Leng believes that if the government were to consider the proposals, employees must be given the option to choose whether to lower their contribution rate or keep to the present percentage.
“I think allowing employees the option to reduce their EPF contribution will be one way to boost their disposable income. But it has to be optional to allow flexibility, as not all employees are affected, only those in some sectors,” says Yeah, a professor in economics who is Malaysian Economic Association deputy president.
However, lowering employee EPF contributions can also have negative effects, he adds.
“Although it is a temporary move, it nevertheless will have the long-term effect of reducing employee savings, which are already currently low for many employees,” says Yeah.
“The concern is for the long-term impact on employee welfare, especially when many employees currently do not have adequate savings for retirement.”
While the Covid-19 outbreak has discouraged overall international travel, the situation in Malaysia is showing some improvement as 17 patients have recovered and been discharged. The total of confirmed Covid-19 cases here remains 22, with only five patients still receiving treatment in hospitals.
The outbreak, however, has taken a toll on the tourism and retail sectors, with the MRCA claiming that many of its members have reported sales drops of 50%, with some expecting revenue to further drop by more than 80% over the next three months.
Prime Minister Tun Dr Mahathir Mohamad will unveil an economic stimulus package on Thursday to mitigate losses from the outbreak so that affected businesses can continue their operations and be ready to reap the benefits when the economy rebounds.
“If the outbreak is prolonged, it could potentially result in a more pronounced (economic) slowdown. The stimulus can be enhanced to support affected sectors to ensure employment can be sustained and businesses do not face bankruptcies,” Yeah explains.
Any attempt to reduce EPF contributions is akin to “adding salt to the injury of suffering workers”, says the Malaysian Trades Union Congress (MTUC).
“EPF acts as a deferred savings account. Contributing to it forces a savings habit and helps build a long-term source of money after retirement or in an emergency,” MTUC secretary-general J. Solomon tells Sunday Star.
“By reducing the contribution, the government and employers are actually converting these savings into disposable income, which could lead to reduced savings and, subsequently, social consequences, including old age poverty,” he says.
Soloman argues that reducing workers’ EPF contributions could hasten the fall into the poverty trap.
“While employer groups seek to reduce their contribution by between 2% and 3% during ‘difficult times’, they have never offered to increase their share of EPF contributions when companies do extremely well.
“Or will they compensate for the current proposed reduction by giving back that amount in better times and further increase that by 2% to 3%?”
The few times that the government implemented an EPF contribution cut, workers were given an option to maintain their contributions at the full rate, he adds.
Financial planner Rajen Devadason says that if the government launches an initiative to reduce statutory EPF contributions, every single wise employee should fill out the needed paperwork to keep their contribution at the present higher rate.
“Our EPF savings are the bedrock of our retirement funding programmes. We shouldn’t short-change ourselves by opting to pay less into EPF today because that will mean we have much less than we otherwise might have in EPF in the future,” points out Devadason.
Devadason says that given the rising levels of longevity risk Malay-sians are facing due to lengthening lifespans, as well as an increasingly expensive future, we need to establish and stick to a budget so that we can live well later in life.
The EPF declined to comment on the proposals but yesterday, it announced its dividends for 2019: 5.45% for conventional savings and 5% for syariah savings. This is the lowest dividend rate for conventional savings declared by the pension fund since 2008.
EPF chief executive officer Tunku Alizakri Alias attributed it to increased “volatility” in the world last year: “As anticipated, we saw substantially more volatility in 2019 compared with 2018. Certainly, 2019 exemplified what it means to be living in a volatile, uncertain, complex and ambiguous world,” said Tunku Alizakri in a statement.
He added that EPF expects 2020 to be just as or even more challenging than 2019, with the full impact of the Covid-19 outbreak likely to drag down already soft global growth. - Star, 23/2/2020
“It might not seem like a lot but it provides some breathing space and some room to spend on my family,” says Ganesh, who is the household’s sole breadwinner with a take home salary of about RM6,000 a month after deductions.
While he can get by on that amount, some months can be a squeeze. So Ganesh is receptive to the suggestion that his mandated contribution to the Employees’ Provident Fund (EPF) be temporarily reduced.
Earlier this month, the Malaysia Retailers Association and Malaysia Retail Chain Association (MRCA) urged the government to temporarily reduce workers’ EPF contributions by 3% to mitigate business losses due to the current Covid-19 outbreak.
Similarly, the Malaysian Employers Federation expressed hope that the government will reduce employers’ and employees’ EPF contributions by 2% for the time being due to the novel coronavirus disease epidemic.
The proposals have received a mixed response from EPF members.
A promoter in a KL mall who identifies herself only as Zarina says that while she would be happy to have extra money in her pocket, she would likely save it for a rainy day anyway.
“We don’t know how long this outbreak is going to last and what impact it will have on the economy,” says the 29-year-old. “I’m more worried about whether I’ll still have a job at the end of the year or even in six months.”
For cleaner Siti Zubaidah Othman, who works in a shopping mall in Petaling Jaya, lowering her EPF contribution rate will not make a big difference to her monthly spending.
“My pay is low anyway and I’m struggling to make ends meet,” says the 41-year-old. “Coronavirus will come and go but my problem continues the same....”
This EPF measure is not new and has been introduced in the past, with the government lowering contribution rates in 2001, 2003, 2009 and 2016. In 2016, for example, the government lowered employees’ contribution rate to 8% from March of that year until December 2017.
Economist Prof Dr Yeah Kim Leng believes that if the government were to consider the proposals, employees must be given the option to choose whether to lower their contribution rate or keep to the present percentage.
“I think allowing employees the option to reduce their EPF contribution will be one way to boost their disposable income. But it has to be optional to allow flexibility, as not all employees are affected, only those in some sectors,” says Yeah, a professor in economics who is Malaysian Economic Association deputy president.
However, lowering employee EPF contributions can also have negative effects, he adds.
“Although it is a temporary move, it nevertheless will have the long-term effect of reducing employee savings, which are already currently low for many employees,” says Yeah.
“The concern is for the long-term impact on employee welfare, especially when many employees currently do not have adequate savings for retirement.”
While the Covid-19 outbreak has discouraged overall international travel, the situation in Malaysia is showing some improvement as 17 patients have recovered and been discharged. The total of confirmed Covid-19 cases here remains 22, with only five patients still receiving treatment in hospitals.
The outbreak, however, has taken a toll on the tourism and retail sectors, with the MRCA claiming that many of its members have reported sales drops of 50%, with some expecting revenue to further drop by more than 80% over the next three months.
Prime Minister Tun Dr Mahathir Mohamad will unveil an economic stimulus package on Thursday to mitigate losses from the outbreak so that affected businesses can continue their operations and be ready to reap the benefits when the economy rebounds.
“If the outbreak is prolonged, it could potentially result in a more pronounced (economic) slowdown. The stimulus can be enhanced to support affected sectors to ensure employment can be sustained and businesses do not face bankruptcies,” Yeah explains.
Any attempt to reduce EPF contributions is akin to “adding salt to the injury of suffering workers”, says the Malaysian Trades Union Congress (MTUC).
“EPF acts as a deferred savings account. Contributing to it forces a savings habit and helps build a long-term source of money after retirement or in an emergency,” MTUC secretary-general J. Solomon tells Sunday Star.
“By reducing the contribution, the government and employers are actually converting these savings into disposable income, which could lead to reduced savings and, subsequently, social consequences, including old age poverty,” he says.
Soloman argues that reducing workers’ EPF contributions could hasten the fall into the poverty trap.
“While employer groups seek to reduce their contribution by between 2% and 3% during ‘difficult times’, they have never offered to increase their share of EPF contributions when companies do extremely well.
“Or will they compensate for the current proposed reduction by giving back that amount in better times and further increase that by 2% to 3%?”
The few times that the government implemented an EPF contribution cut, workers were given an option to maintain their contributions at the full rate, he adds.
Financial planner Rajen Devadason says that if the government launches an initiative to reduce statutory EPF contributions, every single wise employee should fill out the needed paperwork to keep their contribution at the present higher rate.
“Our EPF savings are the bedrock of our retirement funding programmes. We shouldn’t short-change ourselves by opting to pay less into EPF today because that will mean we have much less than we otherwise might have in EPF in the future,” points out Devadason.
Devadason says that given the rising levels of longevity risk Malay-sians are facing due to lengthening lifespans, as well as an increasingly expensive future, we need to establish and stick to a budget so that we can live well later in life.
The EPF declined to comment on the proposals but yesterday, it announced its dividends for 2019: 5.45% for conventional savings and 5% for syariah savings. This is the lowest dividend rate for conventional savings declared by the pension fund since 2008.
EPF chief executive officer Tunku Alizakri Alias attributed it to increased “volatility” in the world last year: “As anticipated, we saw substantially more volatility in 2019 compared with 2018. Certainly, 2019 exemplified what it means to be living in a volatile, uncertain, complex and ambiguous world,” said Tunku Alizakri in a statement.
He added that EPF expects 2020 to be just as or even more challenging than 2019, with the full impact of the Covid-19 outbreak likely to drag down already soft global growth. - Star, 23/2/2020
A better safety net for senior citizens
Ringgitplus
Malaysia, a financial comparison website, conducted a financial
literacy survey and found that 21 per cent of Malaysians didn’t save
money at all. Photo: Reuters
AS we revel in the Lunar New Year celebrations with throaty shouts of
“Gong Xi Fa Cai” or “Huat Ah” whenever we meet our friends and relatives
or partake in the sumptuous yee sang salads, I can’t help but think
about the not-so-fortunate who might not have the means to even
celebrate.
In Pandan Indah, Kuala Lumpur, recently, I saw
an old Chinese woman of more than 70 years struggling to cross the busy
road. Armed with several lanterns intricately-made from ang pow packets,
she had obviously employed her skills to earn a little extra.
Just
the other day, I met Edwin, a 71-year-old Indian man selling curry
puffs and nasi lemak in Wangsa Maju. I was gripped by what he said:
“Even at this age, I try to make myself useful. I don’t want to be put
in a situation where I have to beg for money. My wife makes them in our
house and I come out to sell.”
We noticed many old Malay
women squatting nearby drive-through restaurants, selling various kinds
of snacks when they should be at home with their grandchildren. This
makes you wonder why they’re still struggling to make ends meet.
Malaysian
life expectancy is on the rise with males expected to live for 72.5
years and 77.4 years for females. By 2035, 15 per cent of our population
would comprise people over 65 years, or about five million people.
That’s just 15 years away and that’s a lot of old people.
Last
year, Ringgitplus Malaysia, a financial comparison website, conducted a
financial literacy survey and found that 21 per cent of Malaysians
didn’t save money at all. Of this lot, 11.9 per cent didn’t save or
admitted that they spent a lot on lifestyle, including shopping and
entertainment.
Another 33.7 per cent revealed that their
debt repayments rendered them unable to save, followed by 29.2 per cent
who believed their essential expenses were too high, leaving them with
too little amount to save, while the remaining 25.2 per cent saved only
when there was enough at the end of the month.
Of those
surveyed, 35 per cent kept less than RM500 a month, 23 per cent saved
RM501 to RM1,000, 13 per cent (RM1,001 to RM2,000) while close to nine
per cent said they could set aside more than RM2,000 a month.
Interestingly, 89.2 per cent realised that their Employees’ Provident
Fund (EPF) savings were not enough for retirement and 54.6 per cent of
respondents aged 20 to 29 didn’t have a retirement plan at all.
Introduced
in 1951, the EPF scheme made it compulsory for employees to contribute
11 per cent of their salaries to their EPF accounts. Employers
contribute the equivalent of 13 per cent of the salaries of employees
earning RM5,000 and below, and 12 per cent if salaries are more than
RM5,000.
With Malaysians having enjoyed an average dividend
of 6.02 per cent return for the last 10 years (2008-2017), the
relatively high EPF dividend rate had given many contributors a false
sense of long-lasting financial security. It’s time for a relook,
seriously.
EPF statistics show that 70 per cent of its
contributors who withdraw funds at 55 often use up their savings less
than 10 years after retiring. But in recent years, there has been an
increasing trend for contributors not withdrawing their EPF at one go.
Only
48 per cent of the labour force of 14.5 million out of a population of
about 32 million have active EPF accounts, while 10 per cent work for
the government and are eligible for pension. Others in the informal
sector or self-employed are not covered by any retirement scheme.
EPF
has suggested that the minimum savings that EPF contributors should
have at age 55 is RM228,000. What’s startling is that only 18 per cent
of contributors have that amount minimum savings target of RM228,000 in
their account by 55. At RM228,000, this equates to a monthly withdrawal
of RM950 to cover basic needs for 20 years.
In the past,
many Malaysians used to depend on their children or grandchildren for
incomes after they’ve retired. Some 30 years ago, the pressure on
off-springs were not so intense as the burden could be spread around as
they’ve usually about half a dozen siblings in a family. Now, people are
living longer but have fewer children to support them.
Which
brings to mind that there should be other schemes other than the EPF to
provide a better safety net for senior citizens. It may be high time to
look into private retirement schemes or even a lifelong income scheme
for the elderly like in Singapore. In this way, retirees don’t have to
outlive their savings, therefore having less reliance on family support
once they build up their savings while being employed.
So,
there needs to be a serious push to get more people to have better
financial literacy to fend for themselves during old age. This is also
where the Shared Prosperity Vision (SPV) can also evaluate into
providing a wake-up call, especially for people in denial of their
financial reality, or even effecting higher incomes for more Malaysians.
As Aesop, the ancient Greek storyteller used to say,”It is thrifty to prepare today for the wants of tomorrow.” Gong Xi Fa Cai!
#
The writer is a former chief executive officer and editor-in-chief of
BernamaAS we revel in the Lunar New Year celebrations with shouts of
“Gong Xi Fa Cai” whenever we meet our friends and relatives or partake
in the sumptuous yee sang, I can’t help but think about the
not-so-fortunate.
In Pandan Indah, Kuala Lumpur, recently, I saw
an old Chinese woman struggling to cross the busy road. Armed with
lanterns made from ang pow packets, she had obviously employed her
skills to earn a little extra.
Just the other day, I met
Edwin, a 71-year-old Indian man selling home-cooked curry puffs and nasi
lemak in Wangsa Maju. I was gripped by what he said: “Even at this age,
I try to make myself useful. I don’t want to be in a situation where I
have to beg for money.”
Then there are also old Malay women
squatting near drive-through restaurants, selling snacks when they
should be at home with their grandchildren. It makes you wonder why
they’re still struggling to make ends meet.
Malaysian life
expectancy is on the rise with males expected to live up to 72.5 years
and 77.4 years for females. By 2035, about 15 per cent of the population
would comprise people over 65 years, or about five million people.
That’s a lot of old folks, and just 15 years away!
Last
year, Ringgitplus Malaysia conducted a financial literacy survey and
found that 21 per cent of Malaysians didn’t save money at all. Of this,
11.9 per cent didn’t save or admitted they spent a lot on lifestyle,
including shopping and entertainment.
Another 33.7 per cent
revealed their debt repayments rendered them unable to save, 29.2 per
cent believed their essential expenses were too high, leaving them with
too little to save, while 25.2 per cent saved only when there was enough
at the end of the month. Of those surveyed, 35 per cent kept less than
RM500 a month, 23 per cent saved RM501 to RM1,000, and 13 per cent
RM1,001 to RM2,000. Interestingly, 89.2 per cent realised that their
Employees’ Provident Fund (EPF) savings are not enough for retirement.
Introduced
in 1951, the EPF scheme made it compulsory for employees to contribute
11 per cent of their salaries to their EPF accounts. Employers
contribute 13 per cent of the salaries of employees earning RM5,000 and
below, and 12 per cent if salaries are above RM5,000.
With
Malaysians having enjoyed an average dividend of 6.02 per cent returns
for the last 10 years (2008-2017), the relatively high EPF dividends had
given many contributors a false sense of security.
Time for a relook.
EPF
statistics show that 70 per cent of contributors who withdraw funds at
55 often use up their savings less than 10 years after retiring. But in
recent years, there has been an increasing trend for contributors not to
withdraw all their savings.
EPF has suggested that the
minimum savings EPF contributors should have at age 55 is RM228,000. But
only 18 per cent of contributors have that amount at 55. The RM228,000
equates to a monthly withdrawal of RM950 to cover basic needs for 20
years.
In the past, many Malaysians depended on their
children or grandchildren for income after they’ve retired. Some 30
years ago, the pressure on offspring was not so intense as the burden
could be spread around as they usually have about half a dozen siblings
in a family. Now, people are living longer but have fewer children to
support them.
There should be other schemes to provide a
better safety net for senior citizens. It may be high time to look into
private retirement schemes or a lifelong income scheme for the elderly
like in Singapore. There needs to be a serious push to get more people
to have better financial literacy to fend for themselves during old age.
This is what the Shared Prosperity Vision can evaluate in providing a
wake-up call, especially for those in denial of their financial reality.
Aesop, the ancient Greek storyteller, used to say: “It is thrifty to prepare today for the wants of tomorrow.” Gong Xi Fa Cai!
The writer is a former chief executive officer and editor-in-chief of Bernama - NST, 22/1/2020
EPF ‘inadequate for retirement’
- News
-
Tuesday, 23 Feb 2016
Miksa
says retiring at the age of 55 requires a private savings rate of 18 to
raise retirement income to a total replacement rate of 70.
HOW long one’s money lasts in retirement is a pivotal question to retirement planning.
In Malaysia, the answer is: not long enough, said Allianz Asset Management AG International Pensions head Brigitte Miksa.
“The retirement income provided by the nation’s pension scheme is one of the least adequate, according to our Retirement Income Adequacy (RIA) indicator, which ranks 49 countries worldwide according to their potential to provide an adequate retirement income for future retirees,” Miksa said.
“Benefits in Malaysia only amount to one-third of final salary (34%) when employees are first able to withdraw their pension pots at age 55, according to our calculations.
While this figure is slightly skewed in retirees’ favour – it assumes an annuity, when in fact, pensions are paid out as a lump sum – it still falls well short of the OECD’s (Organisation for Economic Cooperation and Development) benchmark of 60% to 70% net replacement rate,” she explained.
Consequently, retirees in Malaysia are likely to exhaust their assets during the five years following the first possible withdrawal.
At age 60, the nation’s official retirement age, Malaysians may well find themselves with no assets left, but with roughly 20 more years to live, according to International Pensions calculations.
While the added years are reason to celebrate, retirees should go into their twilight years prepared.
“For every year of increased life expectancy, people gain 10 months of healthy life, yet also two months that are likely spent in poor health.
“Consequently, health care costs loom large in retirees’ expenditure patterns and should be covered,” Miksa said.
Yet Malaysia can take some consolation in scoring higher than India and Indonesia in the RIA.
This is largely because of the wider coverage of the Malaysian pension scheme, the Employees Provident Fund (EPF).
The downside is that workers can withdraw their pension pot early, which only adds to the risk of outliving one’s assets.
“The EPF was based on a single-pillar approach when it started in 1951. It was the first public provident fund in Asia and served as a mandatory DC scheme for private sector employees.
“In 1980, a new pension act replaced the ordinances for public sector pensions and created the civil servants’ DB scheme.
“After the Malaysian New Economic Model reforms, the country’s retirement system abandoned its single-pillar approach. The private retirement and the deferred annuity schemes were launched in 2012 as a voluntary third pillar, yet their coverage is still limited,” Miksa pointed out.
So how can Malaysian retirees avoid running out of money?
One way is for younger workers to save more, ideally accumulating savings of 12 to 14 times their last annual salary to ensure an adequate retirement,” she said.
“In today’s pension framework, this translates into an annual private savings rate of 13% to 18% of workers’ income.
“Monetary incentives and financial education could encourage future generations to save into private pension schemes and thereby help protect the financially vulnerable, such as informal workers and low-to-middle income groups,” she said.
Miksa said while women were often found among the financially insecure, Malaysian women in the 30 to 34-year-old bracket earned 14% more on average than their male contemporaries. And female labour force participation is rising, reaching 55% in 2015.
“Consequently, Malaysian women have reason to hope that the younger wife’s curse, the fact that longer-lived women often suffer from lower retirement savings, will soon be lifted,” she said.
Another solution to boost retirement assets is for employees to work longer.
“This reduces longevity risk and allows them to boost savings during their later, high-earning working years.
“Postponing retirement for five years means workers can afford to lower their annual savings rate to 9% and still achieve a replacement rate of 70% of final salary. Delaying retirement to age 65 allows for a savings rate of 3%.
“Meanwhile, retiring at the age of 55 requires a private savings rate of 18% to raise retirement income to a total replacement rate of 70%, according to our calculations,” she stressed,
Not all is gloom in Malaysia. But it is time to start planning for retirement now, Miksa asserted. - Star, 21/2/2016
In Malaysia, the answer is: not long enough, said Allianz Asset Management AG International Pensions head Brigitte Miksa.
“The retirement income provided by the nation’s pension scheme is one of the least adequate, according to our Retirement Income Adequacy (RIA) indicator, which ranks 49 countries worldwide according to their potential to provide an adequate retirement income for future retirees,” Miksa said.
“Benefits in Malaysia only amount to one-third of final salary (34%) when employees are first able to withdraw their pension pots at age 55, according to our calculations.
While this figure is slightly skewed in retirees’ favour – it assumes an annuity, when in fact, pensions are paid out as a lump sum – it still falls well short of the OECD’s (Organisation for Economic Cooperation and Development) benchmark of 60% to 70% net replacement rate,” she explained.
Consequently, retirees in Malaysia are likely to exhaust their assets during the five years following the first possible withdrawal.
At age 60, the nation’s official retirement age, Malaysians may well find themselves with no assets left, but with roughly 20 more years to live, according to International Pensions calculations.
While the added years are reason to celebrate, retirees should go into their twilight years prepared.
“For every year of increased life expectancy, people gain 10 months of healthy life, yet also two months that are likely spent in poor health.
“Consequently, health care costs loom large in retirees’ expenditure patterns and should be covered,” Miksa said.
Yet Malaysia can take some consolation in scoring higher than India and Indonesia in the RIA.
This is largely because of the wider coverage of the Malaysian pension scheme, the Employees Provident Fund (EPF).
The downside is that workers can withdraw their pension pot early, which only adds to the risk of outliving one’s assets.
“The EPF was based on a single-pillar approach when it started in 1951. It was the first public provident fund in Asia and served as a mandatory DC scheme for private sector employees.
“In 1980, a new pension act replaced the ordinances for public sector pensions and created the civil servants’ DB scheme.
“After the Malaysian New Economic Model reforms, the country’s retirement system abandoned its single-pillar approach. The private retirement and the deferred annuity schemes were launched in 2012 as a voluntary third pillar, yet their coverage is still limited,” Miksa pointed out.
So how can Malaysian retirees avoid running out of money?
One way is for younger workers to save more, ideally accumulating savings of 12 to 14 times their last annual salary to ensure an adequate retirement,” she said.
“In today’s pension framework, this translates into an annual private savings rate of 13% to 18% of workers’ income.
“Monetary incentives and financial education could encourage future generations to save into private pension schemes and thereby help protect the financially vulnerable, such as informal workers and low-to-middle income groups,” she said.
Miksa said while women were often found among the financially insecure, Malaysian women in the 30 to 34-year-old bracket earned 14% more on average than their male contemporaries. And female labour force participation is rising, reaching 55% in 2015.
“Consequently, Malaysian women have reason to hope that the younger wife’s curse, the fact that longer-lived women often suffer from lower retirement savings, will soon be lifted,” she said.
Another solution to boost retirement assets is for employees to work longer.
“This reduces longevity risk and allows them to boost savings during their later, high-earning working years.
“Postponing retirement for five years means workers can afford to lower their annual savings rate to 9% and still achieve a replacement rate of 70% of final salary. Delaying retirement to age 65 allows for a savings rate of 3%.
“Meanwhile, retiring at the age of 55 requires a private savings rate of 18% to raise retirement income to a total replacement rate of 70%, according to our calculations,” she stressed,
Not all is gloom in Malaysia. But it is time to start planning for retirement now, Miksa asserted. - Star, 21/2/2016
Most Malaysians cannot afford to retire
- Business
-
Wednesday, 25 Oct 2017
Retirement Advisory Service at EPF Petaling Jaya branch.
MALAYSIA is ageing, and the population over 65 should
come to 15% of the population by 2035. Current Employees Provident Fund
(EPF) savings for most Malaysians are barely enough for a decent life
after retirement.
Meanwhile, Malaysian life expectancy has been rising. Life expectancy at birth in 2015 was 72.5 years for males and 77.4 years for females.
Assuming someone lives until 75, with no major medical expenses and outstanding debt, average savings of RM194,000 would bring RM25 per day, or only RM810 monthly. Of course, this crude analysis does not consider many factors, but the picture is clearly dire.
Poor EPF returns
This year, EPF raised the minimum savings target by age 55 from
RM197,000 to RM228,000. But only 18% of members have this much, far
short of its target of getting at least half its members to meet the
minimum level by 2021. Low investment returns and withdrawals permitted –
for housing, health and education – imply even less for retirement.
More than two-thirds (68%) of EPF members aged 54 had less than RM50,000 in EPF savings! With the household poverty line income at RM930 monthly, RM50,000 in savings will only last 4½ years. The bottom fifth of EPF members have average savings of only RM6,909!
According to EPF, 70% of members who withdraw their funds at age 55 use up their savings less than a decade after retiring. Most EPF savings are therefore not enough to stay out of poverty after retirement.
There are 32 million people in Malaysia, with 69% of the population of ‘working age’ between 15 and 65. Only 48% of the labour force of 14.5 million have active EPF accounts.
Around a tenth works for the Federal Government and are eligible for pensions, contributing to other pension funds, such as the KWAP (Kumpulan Wang Persaraan [Diperbadankan]) and the LTAT (Lembaga Tabung Angkatan Tentera).
Others remain uncovered. Many employees, in the informal sector and others casually employed, do not have active EPF accounts, while many in farming and the informal sector are self-employed.
EPF assets diversified
A late colonial innovation from the early 1950s, EPF is now the world’s seventh largest sovereign pension fund in terms of total assets. In its early decades, EPF had to buy relatively low yielding government bonds, providing the government with a steady source of cheap funds. By 2015, its investment assets were RM685bil, after growing about 10% annually over the previous 15 years. EPF held considerable assets in ‘cash’ in the past.
Investments in traditional, lower risk, domestic, fixed income assets, especially Malaysian government bonds, remain significant. Of ‘held-to-maturity’ (HTM) investment assets, EPF has been accumulating Government sukuk (‘zero coupon bonds’) holdings. By 2015, these came to 29% of total HTM assets, rising rapidly from 2.7% in 2006.
Since the 1980s, EPF has become increasingly market oriented, and has been investing abroad since 1996. Over the years, riskier assets have come to account for increasingly large shares of total investment.
Ostensibly in search of higher returns, EPF’s foreign investments have grown. Investments in equities and properties abroad have been rising in recent years. EPF has gone into foreign markets since 1996, with investments in equity, fixed income yielding assets and real estate, especially in the US, UK, Singapore, China and Australia.
Significantly, it is now allowed to be a major investor, or even operator of businesses, i.e., well beyond being a passive portfolio investor -- a significant departure from past practice. This has undoubtedly affected the context, management incentives and governance of the fund, opening the door to abuse of various kinds.
Holdings in other asset classes, especially equity investments, have grown in recent decades. Direct real estate and infrastructure investments, such as toll highways and waste management, have grown since 2011, most significantly, its 49% stake in PLUS costing RM9bil in 2011.
EPF declared a dividend of 5.7% for 2016, to its 14.72 million members, with a total pay-out of RM37.2bil. Total gross investment income was RM44.2bil in 2015, with domestic (52%) and foreign (48%) sources contributing almost equally. While income from interest, profits and dividends remains stable, capital gains accounted for more than a quarter of EPF income in 2015.
Why EPF returns are low
As EPF savings do not provide most retired employees with enough to live above the poverty line after retirement, it is failing to serve its intended purpose. For over four-fifths of members, poor returns to their EPF savings will prevent them from retiring in comfort. Clearly, depressed wages, low EPF investment returns and high household debt are not serving most Malaysians well.
EPF and other retirement fund professionals need to be allowed to do their jobs to best serve their primary stakeholders, namely retirees, current and future. But political interference is preventing EPF professionals from serving members’ interests better.
Such political intervention in investment decisions does not inspire either EPF members or public confidence. In the past, EPF members were resigned to low returns as their funds were mainly used to buy government bonds offering low returns. With EPF investments more diversified in recent decades, EPF returns increased, but not by much.
Hence, EPF members do not appreciate their retirement funds being used to buy low yielding US infrastructure funds.
The Malaysian public does not want government leaders to sacrifice their interests to curry favour with a foreign leader, especially one who has never offered any concessions to advance our national interests.
* Jomo KS is a Malaysian economist expressing his own views. - Star, 25/10/2017
Meanwhile, Malaysian life expectancy has been rising. Life expectancy at birth in 2015 was 72.5 years for males and 77.4 years for females.
Assuming someone lives until 75, with no major medical expenses and outstanding debt, average savings of RM194,000 would bring RM25 per day, or only RM810 monthly. Of course, this crude analysis does not consider many factors, but the picture is clearly dire.
Poor EPF returns
More than two-thirds (68%) of EPF members aged 54 had less than RM50,000 in EPF savings! With the household poverty line income at RM930 monthly, RM50,000 in savings will only last 4½ years. The bottom fifth of EPF members have average savings of only RM6,909!
According to EPF, 70% of members who withdraw their funds at age 55 use up their savings less than a decade after retiring. Most EPF savings are therefore not enough to stay out of poverty after retirement.
There are 32 million people in Malaysia, with 69% of the population of ‘working age’ between 15 and 65. Only 48% of the labour force of 14.5 million have active EPF accounts.
Around a tenth works for the Federal Government and are eligible for pensions, contributing to other pension funds, such as the KWAP (Kumpulan Wang Persaraan [Diperbadankan]) and the LTAT (Lembaga Tabung Angkatan Tentera).
Others remain uncovered. Many employees, in the informal sector and others casually employed, do not have active EPF accounts, while many in farming and the informal sector are self-employed.
EPF assets diversified
A late colonial innovation from the early 1950s, EPF is now the world’s seventh largest sovereign pension fund in terms of total assets. In its early decades, EPF had to buy relatively low yielding government bonds, providing the government with a steady source of cheap funds. By 2015, its investment assets were RM685bil, after growing about 10% annually over the previous 15 years. EPF held considerable assets in ‘cash’ in the past.
Investments in traditional, lower risk, domestic, fixed income assets, especially Malaysian government bonds, remain significant. Of ‘held-to-maturity’ (HTM) investment assets, EPF has been accumulating Government sukuk (‘zero coupon bonds’) holdings. By 2015, these came to 29% of total HTM assets, rising rapidly from 2.7% in 2006.
Since the 1980s, EPF has become increasingly market oriented, and has been investing abroad since 1996. Over the years, riskier assets have come to account for increasingly large shares of total investment.
Ostensibly in search of higher returns, EPF’s foreign investments have grown. Investments in equities and properties abroad have been rising in recent years. EPF has gone into foreign markets since 1996, with investments in equity, fixed income yielding assets and real estate, especially in the US, UK, Singapore, China and Australia.
Significantly, it is now allowed to be a major investor, or even operator of businesses, i.e., well beyond being a passive portfolio investor -- a significant departure from past practice. This has undoubtedly affected the context, management incentives and governance of the fund, opening the door to abuse of various kinds.
Holdings in other asset classes, especially equity investments, have grown in recent decades. Direct real estate and infrastructure investments, such as toll highways and waste management, have grown since 2011, most significantly, its 49% stake in PLUS costing RM9bil in 2011.
EPF declared a dividend of 5.7% for 2016, to its 14.72 million members, with a total pay-out of RM37.2bil. Total gross investment income was RM44.2bil in 2015, with domestic (52%) and foreign (48%) sources contributing almost equally. While income from interest, profits and dividends remains stable, capital gains accounted for more than a quarter of EPF income in 2015.
Why EPF returns are low
As EPF savings do not provide most retired employees with enough to live above the poverty line after retirement, it is failing to serve its intended purpose. For over four-fifths of members, poor returns to their EPF savings will prevent them from retiring in comfort. Clearly, depressed wages, low EPF investment returns and high household debt are not serving most Malaysians well.
EPF and other retirement fund professionals need to be allowed to do their jobs to best serve their primary stakeholders, namely retirees, current and future. But political interference is preventing EPF professionals from serving members’ interests better.
Such political intervention in investment decisions does not inspire either EPF members or public confidence. In the past, EPF members were resigned to low returns as their funds were mainly used to buy government bonds offering low returns. With EPF investments more diversified in recent decades, EPF returns increased, but not by much.
Hence, EPF members do not appreciate their retirement funds being used to buy low yielding US infrastructure funds.
The Malaysian public does not want government leaders to sacrifice their interests to curry favour with a foreign leader, especially one who has never offered any concessions to advance our national interests.
* Jomo KS is a Malaysian economist expressing his own views. - Star, 25/10/2017
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