This article first appeared in The Edge Malaysia Weekly on January 17, 2022 - January 23, 2022

THE fact that many ordinary Malaysians were willing to give time and money to help their fellow Malaysians, regardless of race or religion, was one bright spot amid the pain and hardship brought on by the Covid-19 pandemic. Would Malaysians also be willing to help out fellow Malaysians when it comes to their retirement savings?

One of many ways policymakers could find out is to ask the top 0.5% of the 14.9 million Employees Provident Fund (EPF) members who collectively had 12.4% of the savings managed by the provident fund at end-2020. Or better yet, ask the top 2.2% or some 245,805 EPF members with at least RM500,000 in savings each, who collectively have a quarter of the savings managed by the fund at end-2020.

The top 0.5% refers to the 248 EPF members with at least RM10 million each saved with the provident fund at end-2020, as well as the 67,919 members who had saved between RM1 million and RM10 million each.

There were also 245,805 EPF members who had at least RM500,000 but less than RM1 million saved with the EPF at end-2020. This group makes up 1.7% of the total number of EPF members but have 12.8% of the savings managed by the provident fund, EPF data shows.

According to The Edge’s calculations based on EPF’s membership and savings data at end-2020 as well as the dividend of RM47.64 billion (5.09% blended yield) distributed to members that year, around RM1.7 billion could collectively be redistributed to the lower-income group if EPF members with at least RM500,000 agree to receive a slightly lower dividend for savings above RM500,000 — while still having an effective dividend rate of between 3% and 5.08% instead of the blanket rate of just over 5.1%.

Their sacrifice could potentially raise effective yield for someone with only RM5,000 savings with EPF to 6.03%, The Edge’s estimates show.

For example, someone with RM10,000 saved with EPF would have received a dividend of only RM509 at the flat blended dividend rate of 5.09% for 2020. He or she could potentially get RM589 or an effective dividend yield of 5.9% if a tiered-dividend rate is applied (see table).

Similarly, someone with RM100,000 saved with EPF could potentially receive an effective yield of 5.39% via a tiered dividend rate, instead of the flat blended rate of 5.09%.

Someone with RM500,000 saved with EPF loses about RM54 a year, our calculations show, with the effective yield on a tiered rate at 5.08% instead of the flat 5.09% rate.

A sacrifice would be seen more clearly among EPF members with more than RM1 million saved with the provident fund. Based on The Edge’s assumed tiered dividend rate, someone with RM1 million in savings would see the effective yield fall to 4.4% on a tiered rate, compared with the existing flat rate of 5.09%.

An EPF multimillionaire with RM10 million saved with the fund would see the effective yield fall to 3.3% on a tiered dividend, compared with 5.09% on the existing flat distribution rate.

To be sure, someone with RM500,000 or RM1 million in retirement savings is not all that wealthy with today’s healthcare costs and living standards, especially when seen in US dollar or Singapore dollar terms — even if one may be better off than the majority of Malaysians struggling with low wages.

The 248 EPF members with at least RM10 million saved with EPF, however, would be deemed wealthy by most standards.

Due to the limited data available on EPF savings in the public domain, however, The Edge could not apply more favourable rates for EPF savers with savings closer to RM1 million compared with those whose savings are closer to RM3 million, RM5 million, RM10 million or higher.

Policymakers, however, would be able to do so with access to richer EPF data.

More favourable tiered rates that involve less sacrifice from the top 2.2% of EPF members would be necessary if the government also tops up or matches every ringgit of yield given up to help those less fortunate.

Just as how an opt-out system was applied when the government reduced the statutory contribution rate for employees to 7% or 9% (from 11%) during the pandemic, the government can ask EPF members with more than RM500,000, RM1 million or RM10 million to opt out if they choose not to sacrifice part of their dividends to help B40 or M40 (bottom or middle 40% income group) EPF members with less savings.

If fiscal conditions permit, tax credits or some other form of acknowledgement of their sacrifice may sweeten the deal for EPF multimillionaires.

An opt-in or opt-out system would also allay fears of the government arbitrarily taking dividends away from EPF members with more savings, many of whom may not really be all that wealthy but have been disciplined and not prematurely tapped their retirement savings.

Whether or not tiered dividends are supported by EPF members who are relatively better off, policymakers will need to step in because the size of the gap is not one that can be closed even if the top 2.2% agree to not take any dividend.

When putting a stop on calls for more premature EPF withdrawals, Finance Minister Tengku Datuk Seri Zafrul Aziz said that easily half of B40 EPF members had only RM1,000 in savings, or only RM4 a month over 20 years, while half of M40 EPF members only had RM25,000 in savings, or RM104 a month for 20 years.

EPF CEO Datuk Seri Amir Hamzah has also said that following the Covid-19-related withdrawals totalling RM101 billion in 2020 and 2021, the number of people who meet EPF’s basic recommended savings is set to fall closer to 27% from 36% at end-2020. And the basic recommended savings of RM240,000 is only the minimum monthly public pension of RM1,000 per month for 20 years if one were to retire at age 55 and expire at age 75. With RM500,000 savings, the amount available per month would rise to RM2,083 over 20 years.

Moreover, only 47.5% of Malaysia’s working adult population are covered by EPF.

With Malaysia set to have 15%, or more than five million, of its population over the age of 60 by 2030, and savings depleted post-Covid-19 for those who need help the most, discussions on ways to help shore up retirement savings and expand the social safety net for the majority need to pick up speed.

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