THE newest withdrawal scheme of as much as RM10,000 from the Workers Provident Fund (EPF) has drawn sturdy considerations on dwindling retirement funds.
That is particularly as Malaysia heads in direction of an ageing society, with a possible retirement disaster the place individuals are financially susceptible with inadequate financial savings, investments and earnings to cowl bills.
Past such short-term measures, growing job alternatives and income streams is the long run, viable technique to enhance earnings.
If this RM10,000 is just not withdrawn, it could develop to RM25,000 if compounded at 4.7% yearly for 20 years.
An anticipated mechanism to cope with the long-term results of this transfer has raised additional questions particularly whether or not it may very well be a case of “robbing Peter to pay Paul?”
There might probably be a mechanism for tiered dividend returns that can decrease the returns for greater stability EPF accounts, and the distinction to be credited to accounts with decrease balances. Or will this contain a better contribution by employers to EPF accounts, at a time of when they’re recovering from the pandemic lockdowns?
The contribution fee by staff is meant to revert to 11% by the center of 2022, however it’s unsure how that can happen, following this newest withdrawal scheme.
Are there different methods to assist prime up the financial savings of these impacted? How can we stop pointless withdrawals?
There are certainly considerations concerning the long-term implications of the various rounds of EPF withdrawal schemes, stated OCBC Financial institution (M) Wellian Wiranto.
Even earlier than the most recent fourth scheme, as many as 3.6 million EPF members have lower than RM1,000 of their accounts. The cumulative results is not going to be minimal as claimed, though the marginal impact could also be lower than earlier withdrawals as many wouldn’t have RM10,000 left.
If the intent is to permit greater returns from an method of “robbing Peter to pay Paul,” it might not work as, for instance, a 20% return calculated on a close to zero stability continues to be close to zero, stated former Inter-Pacific Securities head of analysis Pong Teng Siew.
Based mostly on a conservative life expectancy till age 85, one would wish to cowl bills for a few third of 1’s life in the course of the retirement years.
> To retire protecting primary wants with RM3,000 month-to-month, RM1mil can be wanted.
> To retire protecting primary wants and a few extra gadgets with RM6,000 month-to-month, RM2mil can be required.
> To retire comfortably with RM10,000 month-to-month, RM3mil can be required.
At RM240,000, the EPF required primary financial savings at age 55, is inadequate; extra alarming is just one in 4 Malaysians would have greater than the required primary financial savings at age 55, stated Wealth Vantage Advisory Sdn Bhd chief data officer Stephen Yong.
The youthful EPF contributors who’ve jobs or are self-employed ought to have the ability to construct their retirement financial savings through the years, however that is extraordinarily troublesome for the older contributors. The one actual efficient method to assist these in dire straits by way of their retirement financial savings, is for the federal government to prime up their financial savings, stated Tricor Providers (M Sdn Bhd chairman Dr Veerinderjit Singh.
Nonetheless, that’s virtually not possible, given the fiscal deficit and the necessity to handle federal funds.
The EPF might give greater returns on the financial savings of these impacted however that has numerous regulatory and perceptual points.
Companies that assist the poor generally, and are incomes returns from their amassed funds, may help EPF contributors within the B40 class prime up their retirement financial savings.
Nonetheless, clear standards is required for any such scheme to make sure that it’s accurately focused and never find yourself enriching those that are usually higher off. Permitting people who really want the funds to withdraw, could have the correct affect now than later.
Retirement concern
The chance is those that are usually not in such nice want and should face a retirement disaster in a while.
A case-by-case analysis is a greater technique to handle the difficulty, which is administratively prohibitive, stated Etiqa Insurance coverage & Takaful Bhd chief technique officer Chris Eng.
General, we actually want to make sure that Malaysians are financially literate and perceive the compounding issue in addition to the chance price of withdrawing unnecessarily from their EPF financial savings.
The EPF has been giving out aggressive returns all these years and this concern of yet one more withdrawal could be very unsettling, stated one other observer. With so many previous withdrawal schemes, staff really need time to recoup their financial savings.
The federal government must put proper the financial ship first, by offering the correct stimulus and incentives for company progress particularly within the small and medium enterprises sector, stated Yellowshorts Consulting Sdn Bhd director Nicholas Chan.
With unemployment nonetheless significantly impacted by the latest lockdowns, this has taken a toll on the workforce and the financial system.
This reminds us of some European international locations with large ageing populations and excessive social welfare bills.
We should always create extra jobs and alternatives; permitting individuals to dwell on future retirement financial savings is just not a long-term answer, stated Areca Capital Sdn Bhd CEO Danny Wong.
Whereas encouraging extra overseas funding, greater taxes are usually not welcome by the overseas buyers.
We should always, as an alternative, take a look at growing income and funding from overseas sources; In the end, with higher enterprise and extra strong financial actions, tax revenues will enhance.
The complete extent of this “kick the can down the highway” method will come residence to roost within the coming 10 to twenty years, stated Pong.
It can coincide with a time when returns from all EPF asset courses drop as financial progress and therefore, fairness and property returns drop within the years forward.
We might shortly see one other recession in fast succession within the 12 months forward or so, whereas the personal sector’s fortunes haven’t recovered in any respect from the devastating results of the lockdowns.
Taking cost
Folks must take cost of saving and investing for his or her retirement years, stated Yong.
In addition to EPF contributions, they need to goal to avoid wasting and make investments not less than 20% of their take residence pay. These not contributing to the EPF, ought to contemplate organising an EPF voluntary fund, and/or enhance to avoid wasting and make investments not less than 40% of their take residence pay. With the uncertainties forward, there’s an apparent requirement for higher long-term planning for progress and sustainability.
Yap Leng Kuen is a former StarBiz editor. The views expressed listed below are the author’s personal.