Over Half Of EPF Members Aged 50 To 54 Have Less Than RM50,000 In Their Retirement Funds

This has been described as a 'ticking time bomb' for our ageing nation.

Cover image via Asyraf Hamzah/NSTP

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Malaysians are facing a potential crisis in their retirement savings, primarily due to two main factors: insufficient savings in the Employees Provident Fund (EPF) and taking money out of the pension fund during the COVID-19 pandemic

In a report by Singapore news outlet CNA, EPF chief strategy officer Nurhisham Hussein said that there are EPF contributors who fall into poverty at retirement or even before retirement because they don't have the capacity to continue generating the kind of income they need.

Between 2020 and 2022, it is reported that 8.1 million Malaysians withdrew a collective total of RM145 billion from their EPF savings through special EPF withdrawal schemes such as i-Lestari, i-Sinar, and i-Citra.

According to CNA, EPF's calculations last year showed that less than 5% of Malaysians can afford to retire

30% of EPF contributors have emptied their savings in Account 1 (which is reserved until they turn 55), and more than half of EPF members aged below 55 have less than RM10,000 in their pension fund.

For those who took out their savings from their EPF accounts during the pandemic, it isn't just a case of depleted funds. EPF's dividend rate has been an average of 6% annually since 2011, so early withdrawals have also resulted in lost opportunity cost, as contributors lose out on the interest their accounts may potentially earn, making the financially vulnerable even poorer.

Early EPF withdrawals have been criticised by economists and researchers, calling it "disastrous", "irresponsible", and the "worst policy ever" to be implemented in the country

At the start of the COVID-19 pandemic, the government led by then prime minister Tan Sri Muhyiddin Yassin made it easier for Malaysians facing financial constraints to withdraw money from their pension fund.

The government allocated more than RM530 billion for eight economic stimulus and aid packages in 2020 and 2021. But as the pandemic went on, government resources ran low.

Many Malaysians had to resort to forking out their own money from their EPF savings to look after themselves during the lockdowns.

In a written reply to Al Jazeera, EPF said that the uptick in withdrawals would have long-term effects on contributors' ability to retire comfortably.

EPF had set a basic savings target of RM240,000 by the age of 55, which would allow retirees to spend RM1,000 a month on basic necessities for 20 years, in line with the Malaysian life expectancy

But, saving for retirement is still an uphill task. A survey by fund management company StashAway Malaysia, cited in FMT, shows that 45% of Malaysians will not even have RM100,000 in savings upon retirement.

Meanwhile, more than half of EPF members aged 50 to 54 have less than RM50,000 saved up in their retirement fund, meaning that they would have less than RM208 per month to use in the next 20 years after they retire.

The next generation will have to shoulder the burden if large numbers of Malaysians retire without sufficient savings

According to CodeBlue, Malaysia will be an ageing nation by 2030 when people of the age of 60 and above surpasses 15% of the total population.

Though there isn't one true solution for this pressing issue, Nurhisham suggests that increasing the current retirement age of 60 years old and increasing employment among senior citizens could boost savings levels.

Hiking up the retirement age does have its limits, according to Malaysia University of Science and Technology economist Geoffrey Williams, as 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.

Nurhisham has said that there is a chance to "reform" within the next 10 to 20 years, as the public is receptive about the importance of saving up for retirement.

"People do realise the importance of it. It's just whether they have the capacity for it," he said.

Here's an expenditure guide providing estimated minimum expenses for various types of households:

Earlier, the government had proposed an 'Account 3' that allows withdrawal any time:

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