'Impossible' for many Malaysians to replenish EPF Account 1 during rest of working life — economist

Photo by Suhaimi Yusuf/The Edge

Photo by Suhaimi Yusuf/The Edge

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KUALA LUMPUR (Nov 23): The withdrawal of pension funds to mitigate the impact of Covid-19 has aggravated the problem of savings inadequacy among Malaysians, which could make it impossible for many Malaysians to replenish their Employees Provident Fund (EPF) Account 1 fund to meet the minimum threshold set by the pension fund during the remainder of their working life, said Malaysia University of Science and Technology economist and professor Dr Geoffrey Williams.

The EPF has previously stated a drop in savings among its members following three special withdrawals, namely i-Lestari, i-Sinar, and i-Citra, which have led to 6.1 million members now having less than RM10,000 in their EPF accounts, among whom 3.6 million have less than RM1,000, leaving them vulnerable and unprotected after their retirement.  

The pension fund also estimated that members will need to work between an extra four and six years to rebuild the savings that were utilised during the pandemic, leading to a significant drop in the percentage of members meeting the basic savings threshold of RM240,000 by 55 years of age, from 36% in 2020 to an estimated 27% by the end of this year.

Against the backdrop of an ageing population, coupled with as many as 85% of Malaysians facing the risk of old-age poverty, Williams highlighted there is a greater emphasis needed for a reform of the current pension structure.

"Working longer adds virtually nothing to retirement income," he said at the briefing of the International Social Wellbeing Conference 2021 titled "The New Narrative: Turning the Tide on Inequality".

"What we need is to weigh on a single figure pension system based on contributions from wages and to move towards a more structured pension scheme, or a more comprehensive pension scheme in which that proportion of contributions from wages remains as a significant component of the pension scheme, but isn't the only and certainly not the main component of the pension scheme. (This is) what we call a universal basic pension. That is, in other words, we need to underpin all the pension systems by a non-contributory minimum basic decent income level pension available to everybody in the older age."

According to him, a non-contributory scheme can be funded by various forms of contribution, including investment income from public investment funds because the EPF and the other public investment funds — such as Retirement Fund, Inc (KWAP) — are actually fairly well-managed investment funds that are very good in delivering risk-adjusted returns in very difficult investment environments.

"But a very interesting, albeit very radical solution to the problem of funding a universal basic pension would be to take the existing pension funds that we have, the existing public pension funds, for example, and pull them altogether. If we were to do that we would get somewhere close to RM1.2 trillion in assets under management. If we were to invest at 5%, we would get about RM6 billion per year. That type of solution will provide a very generous or relatively generous living wage pension," he added.

Also, another suggestion would be for the government to allocate some budget into this universal basic pension, as well as introduce a wage distribution tax for people with the top 20 income (T20) tier group, said Williams.

"In order to do that, we need to have a proper fully engaged national discussion and how we can do it so that it can be financed. It can be financed relatively straightforwardly, either just by direct government spending by a combination of government spending, investment income and redistribute taxes, or it can be financed very simply by consolidations, existing funds into a new pensions scheme. But all of those things require a significant national discussion and public consensus," he added.

Lam Jian Wyn