Thursday 30 June 2022

Can One Retire With EPF Contributions?

A survey conducted by the Social Wellbeing Research Centre (SWRC) of Universiti Malaya found that more urban EPF members made withdrawals via the i-Lestari and i-Sinar schemes than those from rural backgrounds.

In the survey, which saw 2,000 respondents, 31.8 percent earned within RM1,001 to RM2,000, 18 percent earned less than RM1,000, and 23.9 percent had no income.

Among the respondents, 84.6 percent and 76.8 percent who withdrew from i-Lestari and i-Sinar respectively used their funds for daily expenses, while 46.1 percent and 55.5 percent used it for loan repayments, such as for cars, housing, and credit cards.

A significant proportion of respondents, 35.4 percent and 40 percent, also used the money to fund their children’s education during the movement control order (MCO), while 32.7 percent and 34.8 percent used it to pay their house rent.


Source: https://ms.wikipedia.org



A similar survey conducted by the UCSI Poll Research Centre reported 32 percent of 809 respondents who withdrew from the i-Sinar scheme, spent the money on home repairs or minor renovations.

While there are legitimate needs for the withdrawal, there have also been instances of financially questionable decisions. An example of this includes a man in Terengganu who reportedly used RM1,080 of his RM5,000 i-Sinar withdrawal to install 11 speed bumps outside his house, claiming his sleep was often disturbed by vehicle noise.

After an estimated RM110 billion was withdrawn in the two years from the fund’s Covid-19 related measures, savings among EPF members in the fund have been set back by almost 10 years.

It was reported in late 2021 that 6.1 million people, which is half of EPF members, have less than RM10,000 in their accounts, of which 2.6 million have less than RM1,000.

To add to this, Malaysia is on the cusp of becoming an ageing society, with over 5 million of the population expected to be over 60 years old by 2030. This is also the minimum retirement age of civil servants, which impacts heavily the large pensioner population upon retirement.

The EPF’s target of RM240,000 needed for retirement is mainly a projected figure and may vary based on the cost of living in different cities and by different household categories.

According to research done by Universiti Malaya, a single senior citizen who lives in the Klang Valley area is estimated to have higher monthly expenses of RM2,490. This is compared to people in Alor Setar, Kedah who require less - approximately RM1,990.

Citizens may also be forced to take into account the gradual decline in health during those years, with chronic diseases such as hypertension and diabetes being the most common among Malaysian adults. 

To rebuild the EPF’s loss is to subscribe to voluntary additional contributions capped at RM60,000 per year, or increase monthly contribution rates above 11 percent to speed up the replenishment of funds. However, Khazanah Research Institute revealed that from the total active EPF members of 7.6 million in 2019, registered members in voluntary schemes made up only 2.7 percent or roughly 200,000 members.

According to the Malaysia Ageing and Retirement Survey (MARS) 2018 that was conducted by Universiti Malaya, 81 percent of respondents (1.59 million individuals) preferred to continue working even after their retirement.

Economists have called for a universal pension scheme to overcome the adverse effects from EPF’s previous withdrawal schemes. The proposed system could be funded by grants from the government, income from public investments, and contribution schemes.

Khazanah Research Institute recommended a social insurance pension as an alternative. This would involve compulsory monthly contributions of RM53 for at least 36 years to receive a monthly annuity equivalent to the future value of the poverty line per capita for a lifetime starting from the age of 60.

Of the above two proposals, a universal pension scheme through EPF is the better option. Government may need to “top up” with grants or other contributions from GLCs and/or Petronas. That’s the only credible way forward but don’t hold your breath. This Government is bankrupt of courage and idea.

Reference:
Do you have enough for retirement? Let’s find out, Raveena Nagotra, https://newslab.malaysiakini.com, 


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