by Edwin Oh Chun Kit
EXECUTIVE SUMMARY
Malaysia is grappling with the potential impact of a major retirement crisis. Two-thirds of active Employees Provident Fund (EPF) contributors under 55 lack sufficient retirement funds while only 47% of the workforce is covered by EPF, falling short of the global average where at least 68% is covered by some form of pension scheme. To make matters worse, over 40% of Malaysia’s workforce lacking any formal retirement scheme. This raises concerns about widespread poverty in the future, especially taking into account the 7.5 million inactive EPF contributors. Projected to reach “aged nation” status by 2040, Malaysia’s rapidly aging population poses a significant threat to amplify this retirement crisis.
Addressing the long-term financial security of Malaysians requires a comprehensive approach in regards to social protection. However, administrations over the past few terms have taken up half-cooked approaches that appeared to hurt rather than aid. For instance, the three special withdrawal schemes during the COVID-19 pandemic allowed members to help themselves through (essentially with their very own money), resulting in a massive drawdown of EPF savings. As for the recent RM708 million additional government incentive targeted to 1.4 million eligible members, it is unimpactful as it does not serve the intended purposes (to encourage savings).
All in all, Malaysia is lacking initiatives that tackles the root issues of this crisis such as the nation’s low-skilled low wage structure which limits savings and contribution to the EPF. Also, the country lacks a social protection system that does not rely solely on dividend distribution, pensions and the one-off government contribution.
INSAP believes that this is an opportune time to introduce reforms to the nation’s retirement scheme as a whole, especially with the government now removing pensions for civil servants (as they have now been transitioned into the EPF contribution system). A Universal Retirement Savings Scheme, built on the foundations and base of the EPF should be contemplated. This system must harmonize all existing schemes with coverage extended to all Malaysians regardless of employment type.
Next, we propose to direct a portion of national project returns (at a set percentage) from GLCs/GLICs/GOCs to this universal scheme where it will then be distributed fairly among beneficiaries, regardless of prior saving levels. On top of that, INSAP suggests looking into Singapore’s Central Provident Fund (CPF) dedicated account system to replace the current EPF split into Account 1 and 2 which allows for a more focused and purposeful savings due to its “lifecycle-based” allocation in terms of saving ratio. Malaysia stands at a crossroads: embrace systemic reforms now or face a future shadowed by widespread retirement poverty.