Report: Is ageing Malaysia facing retirement ‘time bomb’ with insufficient EPF savings?

(MMO) – Malaysians’ inadequate retirement savings in the Employees Provident Fund (EPF) — which was further hit with pre-retirement withdrawals to cope with the financial impact of Covid-19 — could be a ticking “time bomb” for the ageing nation, a report suggested.

In a report by Singapore news outlet Channel News Asia (CNA) current affairs programme Insight, EPF chief strategy officer Nurhisham Hussein said it is a reality that there are EPF contributors who become poor even before they retire.

“Some of our members do 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,” he was quoted saying by CNA.

According to CNA, EPF’s calculations last year showed that only around 4 per cent of Malaysians can afford to retire.

With 8.1 million Malaysians having withdrawn a total of RM145 billion from their EPF savings through four Covid-19-linked voluntary withdrawals between 2020 to 2022, CNA noted Nurhisham as saying that this was not a financial problem for EPF itself and that the impact was more on EPF contributors’ savings level, especially those in the lower rungs.

CNA reported that EPF itself had investment assets totalling more than RM1 trillion at the end of last year.

According to CNA, around 30 per cent of EPF members were in February 2021 reported to have almost emptied their whole savings in Account 1 (which they normally could not withdraw from before they turn 55), and that over half of EPF members aged below 55 had less than RM10,000 in EPF savings.

With EPF returning dividends of an average 6 per cent annually since 2011, CNA said the Covid-19 withdrawals have resulted in an opportunity cost as contributors would lose out from the interest earned and that the early withdrawals from EPF make the poor poorer.

CNA cited Malaysia University of Science and Technology economist Geoffrey Williams as being among those who viewed the early EPF withdrawals as a “disastrous move” where EPF contributors had to use their own money to look after themselves during the lockdowns, while Institute of Malaysian and International Studies research fellow Muhammed Abdul Khalid said it was “irresponsible” and the “worst policy ever” implemented in the country.

The EPF had set a minimum Basic Savings target of having RM240,000 by the age of 55, which would translate to RM1,000 per month for basic needs for 20 years, which is in line with the Malaysian life expectancy.

But CNA said over half of EPF members aged 50 to 54 have less than RM50,000 saved up in EPF, which would amount to less than RM208 per month for them to spend over 20 years in retirement.

Nurhisham said Malaysia will be going from an ageing to aged to super-aged country within “a short span of 50 years”.

“People like to say ‘ticking time bomb’, right? We’re seeing some of that happening today,” he was quoted as saying.

In the Current Population Estimates 2023 released this July, the Department of Statistics Malaysia (DOSM) said those in the age group of 60 and above account for 3.8 million or 11.3 per cent of the total Malaysian population in 2023, and that Malaysia is projected to be an ageing nation in 2030 when the age group of 60 and above surpasses 15 per cent of the total population.

Using international definitions of aging society based on the age group 65 and above, the World Bank in 2020 said Malaysia is already an “aging society” as of 2020 as over seven per cent of the population would be aged 65 and above, and that the country would be an “aged society” by 2044 and “super-aged society” by 2056 when that age group hits 14 per cent and over 20 per cent of the population.

CNA reported Nurhisham as saying that increasing the current retirement age of 60 years old and increasing employment among senior citizens could be used to improve savings levels.

CNA said however that hiking the retirement age has its limits, citing Williams as saying that 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.

CNA noted that the next generation will have to shoulder the burden if a high number of Malaysians retire without having enough savings, with Nurhisham saying that the family system has started to break down as people are having fewer children.

“So we’re starting to see that first wave of people who are having trouble in retirement really coming through,” he was quoted saying.

While CNA noted there seems to be no quick solution for the issue of retirement savings, it cited Nurhisham as seeing a chance for “reform” within the coming 10 to 20 years, as the public is receptive about the need to save up money for their retirement.

“People do realise the importance of it. It’s just whether they have the capacity for it,” he said.

Read here for the EPF-commissioned guide Belanjawanku 2022/2023 — prepared by Universiti Malaya’s (UM) Social Wellbeing Research Centre (SWRC) — on how much senior citizens could expect to spend at minimum to retire in 12 cities in Malaysia. This ranged from at least RM2,020 to RM2,520 for a senior citizen living alone.