KUALA LUMPUR: A rule of thumb every employed person should abide by is not to touch his or her retirement fund, no matter what happens.
However, not everyone has the financial resilience to withstand the economic shock brought on by major events, such as the COVID-19 pandemic and the lockdowns that came with it.
The coronavirus impact hit Malaysia's economy hard with the unemployment rate jumping to 5.3 per cent in May 2020.
The economic impact has dissipated since as the country's jobless rate went down to 4.3 per cent in the fourth quarter of 2021 - the lowest level since the pandemic hit the country - as demand for labour surged amid recovery.
The ringgit, too, has been badly affected by the pandemic.
The weakened currency has adversely affected the purchasing power of Malaysians as more of the local notes are required to exchange for US dollars.
This means that the living standard of Malaysians will decrease due to the lower purchasing power.
Fourth EPF Withdrawal
For some people, a retirement plan remains a pipedream. One cannot invest in the future when his or her present circumstance is bleak.
For example, currently, 48 per cent of 6.1 million members of the Employees Provident Fund (EPF) under the age of 55 have less than RM10,000 in savings in their retirement fund.
In the latest move to help those in need, the government has allowed another round of RM10,000 EPF withdrawal. Is this a sensible move?
Prior to the latest withdrawal, the government had already allowed EPF savers to withdraw up to RM71,000 from their retirement funds through three EPF withdrawal programmes, which collectively amounted to RM101 billion.
As highlighted by the EPF, this has led to a total of 6.1 million members now having less than RM10,000 in savings in their retirement funds. The fund further emphasised that as of October 2021, 3.6 million contributors have less than RM1,000 in their accounts.
From this group, two million Bumiputera members have less than RM1,000 savings.
CGS-CIMB Research said despite the positive short-term impact, the latest RM10,000 withdrawal is likely to exacerbate the pending retirement crisis and the past three withdrawals have reversed over 10 years of efforts to achieve basic savings goals.
It noted that since the pandemic began, median savings for 54-year old members dropped to RM37,000 in December 2021 from RM41,000 pre-COVID19, a far cry from the EPF's recommended basic savings of RM240,000 if one were to spend an average of RM1,000 per month for 20 years after retirement.
"In fact, the basic savings requirement is based on the household poverty line income of RM930 monthly, which is a modest estimate," said the brokerage firm in a research note today.,
Only 27 per cent of active members were able to meet the basic savings requirement, from 36 per cent before the pandemic, the research house observed.
Hence, amid the economic recovery, EPF withdrawals should be used only in emergency situations and as the last resort.
The Institute for Democracy and Economic Affairs (IDEAS) believes that the decision to continue to allow EPF withdrawals were not grounded on sound economic logic but was a knee-jerk reaction to a political agenda.
The think-tank said such short-term thinking will have a detrimental impact over the long run and has urged political leaders to consider the negative impact such a policy entails for pensioners and future generations.
Impact to EPF
Recently, Finance Minister Tengku Datuk Seri Zafrul Aziz said the EPF would have to dispose of more of its overseas investments, as well as halt domestic investments in the short to medium term if another RM10,000 withdrawal were to be allowed.
Universiti Kuala Lumpur (UniKL) Business School economics associate professor Aimi Zulhazmi Abdul Rashid has likened the selling of the EPF's overseas portfolio assets to "killing the goose that lays the golden eggs" as the EPF had announced that 37 per cent of its 2021 investment income came from overseas as the domestic market was not encouraging.
"Thus, if the EPF is forced to sell more of its overseas portfolios, it will affect the contribution to EPF's income in the long term. The global economy and financial climate have not fully recovered from the COVID-19 pandemic," he told Bernama.
Aimi also noted that the Russia-Ukraine war has led to rising commodity prices such as crude oil, triggering high inflation, and cited that the US inflation rate of 7.9 per cent in February 2022 was the highest in four decades.
"So, with high inflationary pressures, fund managers must work hard, such as the EPF, which not only needs to invest strategically to get good returns but also protect the savings of contributors," he added.
Survival of the Fittest
Raising the minimum wage, ensuring there are enough jobs in the market, and addressing the rising prices of essential goods would be better ways to protect the workforce.
At the time of writing, the government had just announced the much anticipated RM1,500 minimum wage policy that will be implemented on May 1.
Aimi said a new social safety net is required as Malaysia is fast becoming an aging nation, even by global standards, according to the World Bank's projection.
"The statistics were already gloomy even before the approval of the one-off RM10,000 withdrawal was given; as many as 6.7million contributors were already having less than RM10,000 in their individual EPF accounts," he said. "In addition, a very scary fact was revealed that out of the 6.7million, about 60 per cent have almost nothing in their accounts."
He also pointed out that the latest approval of the one-off RM10,000 withdrawal would further reduce EPF coffers and would impact the retirement fund's investment portfolios.
"This needs a balancing act, but the worrying situation is the massive crisis in retirement over the next several years," he said, adding that the reality is tougher as the increasing cost of living in Malaysia is faster than the growth in income. "Certainly, it is almost impossible to rely on the minimum balance after the EPF withdrawal, and in my perspective, most Malaysians can no longer rely on the EPF for their retirement."
Aging Society
According to data by the World Bank, Malaysia had already become an ageing society in 2020, with approximately 7.0 per cent of the population aged 65 and above.
Based on the latest projections, Malaysia will become an "aged society" by 2044 with over 14 per cent of its population above the age of 65.
IDEAS director of economics and business Juita Mohamad has stressed that it is crucial that Malaysia's increasingly expanding pensioner population have an adequate cushion when they hit retirement.
"With the economy recovering and the job market strengthening with the absence of lockdowns, IDEAS believes that EPF withdrawals should be used as the last resort and in emergency situations only," she said, adding that there are various existing funds that can be used at both the federal and state levels, such as the zakat funds and the National Disaster Relief Fund.
-- BERNAMA
Bernama
Thu Mar 24 2022
Amid the economic recovery, EPF withdrawals should be used only in emergency situations and as the last resort. - BERNAMA
ISIS Malaysia's perspective of Budget 2025
An excellent rakyat-centric budget under the overarching principle of a caring and humane economy.
Budget 2025: Record increase in STR, SARA aid initiatives
The government will provide a significant boost to the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) initiatives next year.
Budget 2025: EPF contributions to be made mandatory for foreign workers – PM Anwar
The government plans to make it compulsory for all non-citizen workers to contribute to the Employees Provident Fund (EPF).
What policies to expect from Indonesia's new President Prabowo
Prabowo will be open to foreign investment, his aide has said, such as by offering investors management of airports and sea ports.
Budget 2025: Govt allocates RM470 mil to empower women's participation in PMKS
The Women's Leadership Apprenticeship Program will be intensified as an effort to produce more female corporate personalities.
Israel sends more troops into north Gaza, deepens raid
Residents of Jabalia in northern Gaza said Israeli tanks had reached the heart of the camp, using heavy air and ground fire.
Indonesia ramps up security ahead of Prabowo's inauguration
Prabowo Subianto will be sworn in as Indonesia's president on Sunday with Vice President-elect, Gibran Rakabuming Raka, also taking office.
Immediate allocation of RM150 mil for local authorities, DID to tackle flash floods
Datuk Seri Anwar Ibrahim said this allocation is intended to address the recent flash floods that hit the capital and several major towns.
Budget 2025: Sabah, Sarawak to continue receiving among highest allocations - PM
Sabah and Sarawak continues to be prioritised under Budget 2025, with allocations of RM6.7 billion and RM5.9 billion respectively.
NFOF will be operational in November 2024 with funding of RM1 bil
PM Anwar Ibrahim said NFOF will support venture capital fund managers to invest in startup companies with RM300 million set aside for 2025.
Minimum wage to increase to RM1,700 effective Feb 1, 2025
The Progressive Wage Policy would be fully enforced next year with an allocation of RM200 million, benefiting 50,000 workers.
Bursa Malaysia ends higher on Budget 2025 optimism
The benchmark index, which opened 1.85 points higher at 1,643.29, moved between 1,641.71 and 1,649.31 throughout the trading session.
Five important aspects relating to people’s lives in Budget 2025 - PM
The focus is on driving the MADANI Economy, speeding reforms, cutting red tape, raising wages, and tackling the cost of living.
Economic outlook: Govt plans to leverage, expand existing city transit system
The expansion aims to provide a more efficient and reliable public transportation network, reduce congestion, and improve accessibility.
Economic outlook: Budget 2025 to lay foundation for a digital-driven economy
The report said Budget 2025 will entail efforts to position Kuala Lumpur as a top 20 global startup hub by 2030 through the KL20 initiative.
Economic outlook: Corruption and lack of accountability hinder economic progress
Special Cabinet Committee on National governance is established to curb corruption, law reforms to modernise outdate regulations, MoF said.
National Wages Consultative Council will be strengthened
The govt will also incentivise hiring women returning from career breaks, offer job matching and improve care services facilities.
Economic outlook: Ensuring 11 years of compulsory education for all children
Budget 2025 will continue prioritising upskilling and retraining initiatives to equip workers with the latest skill sets necessary.
Consolidated public sector projected to record lower surplus of RM41.7 bil 2024
The MoF said the consolidated general government revenue is estimated to increase slightly to RM384.7 billion in 2024.
PM announces substantial Budget 2025 hastening Malaysia to become Asian economic powerhouse
Datuk Seri Anwar Ibrahim said it would create jobs and also tackle financial leakages to enhance public spending efficiency.