An interesting proposition made by Cindy Yeap, The Edge Malaysia is for EPF savers to help those with very little savings. Cindy suggests that policymakers could find out from the top 0.5% of the 14.9 million Employees Provident Fund (EPF) members who collectively hold 12.4% of the savings managed by the provident fund at end-2020. Or better, ask the top 2.2% or some 245,805 EPF members with at least RM500,000 in savings each, who collectively hold 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.
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 248 EPF members with at least RM10 million saved with EPF, however, would be deemed wealthy by most standards.
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.
Tax credits or some other form of acknowledgement of their sacrifice may sweeten the deal for EPF multimillionaires. According to the Edge, 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.
On the first glance, it is appealing to the “rich” to assist the poorer segments of society. This is our subsidy mentality. Are we a socialist state? In China, the Government could confiscate your house (or any other asset) because all land belongs to the state.
But then, don’t we have compassion to help the poor? The key issue is low wages. The country has been promoting the “low-cost” economy thesis for the last 40 years. It is time to change wages, otherwise we will have more foreign workers and those locals remain in low-income jobs. Productivity and wages have to change.
To address the issues, several steps could be effected:
- Raise retirement age to 65%;
- EPF will secure Government support to “top-up” account 1 of the bottom 10% impacted by Covid-withdrawals (through bond issuance subscribed by “rich” EPF contributors);
- Increase minimum wage to RM1,500 initially, with the view of RM2,000 in 3 years time; and
- Establish a joint public-private commission on wages
If you have to tax, then tax income or wealth, not contributors to a retirement fund. No matter what political stripe, this idea of using a retirement fund to address social issues is not the way forward. One may consider a higher tax for the “super-rich” (or the corrupt) to “save” the poor but please not a “tax” on “rich” contributors to a retirement fund! Otherwise, we could next have a “tax” on fixed deposits held above RM250,000 and not guaranteed by PIDM?
Reference:
Would multimillionaire EPF savers help poorer members? Cindy Yeap, The Edge Malaysia, 24 January 2022) https://www.theedgemarkets.com
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