Recent EPF Withdrawals Will Force Many Malaysians to Work Past 60

Many Malaysians depended on their Employees Provident Fund (EPF) savings to survive through the pandemic. It resulted in most of them having lower savings, and they may be forced to work long after retirement age. 

Before the pandemic, Malaysians' retirement savings rate was already low as EPF data said that two out of three members aged 54 have savings below RM50,000. This situation puts them at risk of living under the poverty line. 

The pandemic only worsened the situation with the provision of numerous withdrawal schemes. The EPF just revealed that Covid-19-related withdrawals for the past two years had a huge effect on the members' savings. As of now, only 3% of EPF contributors can afford their retirement. 

 

Malaysians need to work longer hours to save for their retirement

According to a licenced financial planner, Kuah Soo Yee, Malaysians will need to work longer hours and delay their planned retirement age due to insufficient EPF savings. With the retirement delay, the labour market will change with more older people staying in the job market. 

She highlighted that the government would need to adjust the healthcare system and social benefits to cater to the ageing population's needs. Low-income earners struggle with essential living expenses, and with no extra money for saving, they will continue having problems saving money. 

She said that for them to be able to save money, they must first increase their earning capability. 

She added that higher-income Malaysians might not be able to save money because of poor financial management. Many spend lavishly and end up living paycheck to paycheck. People need financial discipline and proper cash flow management to begin saving money. 

 

Poor financial behaviour

According to the Malaysian Financial Planning Council’s Michael Kok, EPF’s withdrawal schemes were needed, particularly for people who have lost their jobs, as many had suffered with insufficient money for basic living needs. 

However, he was worried about EPF contributors who did not need to withdraw from the schemes but withdrew money anyway, primarily because of poor financial behaviour. 

When one withdraws their savings for ‘wants’ and not ‘needs’, it causes long-term effects on their savings rate. Premature withdrawals will affect the returns meant for one’s retirement. 

Kok said that without financial discipline, Malaysians would struggle during their retirement. They will have to depend on the government or their children for assistance. 
 

Replenishing retirement savings

Kok said that Malaysians must replenish their retirement savings during active earning years. Those who have withdrawn money via EPF’s schemes should strive to contribute the amount withdrawn back into their EPF accounts now that the economy is recovering.  

According to him, they must commit at least an extra 10%-10% of the full withdrawn amount to compensate for the lower compounding interests because of the withdrawals. 

He also said that financially literate people could optimise their EPF savings. The EPF generally pays out from 5% to 6% returns. However, it allows members to invest savings in Account 2 under its Members Investment Scheme. Contributors with a higher risk profile can optimise their savings by doing the above. 

However, he said that people who are not financially literate must take the initiative to study financial literacy. It is crucial to ensure the retirement years are taken care of. Kok believes that people should look holistically at the best approach for their money when planning personal finances. 

 

Low savings threshold

According to Kok, the pandemic sent a clear message that Malaysians’ savings threshold is low. They must remember the need to allocate a part of their earnings to their retirement savings fund. 

He cited World Bank data that showed Malaysians’ savings rate at 26.12% of GDP in 2020. He said the clearest sign of a person’s financial health is their personal savings rate. One must be aware of protecting their financial nest to achieve financial wellbeing, beginning with better savings behaviour. 

Kok said Malaysians must remember that the savings rate reported includes mandatory EPF savings. When retirement savings are out of the equation, it is evident that Malaysians’ savings rate is low. 

He said that according to the Capital Market Development Fund research, one out of three Malaysians has more debts than assets. Another finding is 52% of Malaysians have barely enough income to serve their basic needs.
 

Source: The Malaysian Reserve