By G. Sharmila
EPF has initiated a public consultation via its website on increasing the full withdrawal age limit from 55 to 60. It has the numbers to support that many members do not have enough saved for retirement. However, members of the public have argued that they want to be able to decide what to do with their retirement savings. KINIBIZ explores the matter.
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It’s a subject that has stirred up much debate of late. What we’re talking about of course, is the Employees’ Provident Fund (EPF)’s proposed move to increase the full withdrawal age limit from 55 to 60.
When EPF first announced its intention following its 2014 annual report announcement two weeks ago, it said it would initiate a public consultation on the move prior to making any decisions. However, this announcement was met by uproar from the public, particularly via social media, most of whom were and still are, against increasing the full withdrawal age limit.
In response to the criticism, EPF decided to postpone the public consultation to April 21, where it gave people more options in relation to the full withdrawal age.
The new consultation involves four areas of enhancing its members’ retirement savings, the details of which are available online at: www.kwsp.gov.my. (Members need to have an online EPF account called i-Akaun to participate in the survey.)
We outline the four areas here:
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Options on aligning the full withdrawal age with the minimum retirement age.
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Aligning minimum contributions with the minimum wage legislation.
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Extending dividend payments on contributions kept in EPF from the age of 75 to 100 years
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Introducing Syariah-compliant retirement savings in addition to the existing retirement savings scheme, where members will have the option to switch to the former when it is introduced.
The first area involves two options, namely to extend the full withdrawal age from 55 to 60 years on a staggered basis over a 15-year period. This effectively calls for the withdrawal age to be increased by one year every three years, reaching 60 at the end of 15 years.
The second option maintains the age 55 withdrawal and introduces a new age 60 withdrawal for contributions of those working past the age of 55 (see chart for more details).
While the EPF may come across to the public as a know-it-all, its recommendations come from a place of genuine concern for the welfare of its members, it seems.
As of 2014, EPF had 14.2 million members, 6.66 million of which are active members. According to the EPF, 89% of its active members earn below RM5,000 a month.
It also said recently that 30% of its active members earn less than RM900 a month, which is below the minimum wage level (see table for a more complete picture).
But that’s not all.
According to EPF, many members are not meeting their basic retirement savings threshold with 68% of EPF’s members aged 54 having less than RM50,000 in savings, while 50% of EPF members above the age of 55 have exhausted their savings in five years.
The minimum recommended savings for those aged 55 is RM198,600, according to EPF (see tables for the full range of statistics).
The above are scary numbers indeed. Hence it’s no surprise that EPF wants to raise the withdrawal age limit, so that members can grow their money for an additional five years (ie 55 to 60) at an annualised rate of 6%, which is about what EPF has been giving its members over the last five years.
One has to remember that EPF only guarantees a 2% annual return, although because of its relatively conservative investment stance it has been able to give returns of an average of 6% over the last few years.
However, the 6% is far better than the deposit and fixed deposit rates offered by banks and gives people more security than investing in stocks or commodities.
Some support EPF’s move.
Mark Wang, CEO of AIA Pension & Asset Management Sdn Bhd told KINIBIZ via email: “We see the rationale behind EPF’s move to increase the withdrawal age to 60.
“Aligning the EPF withdrawal age with Malaysia’s current retirement age of 60 will ensure that people have sufficient funds when they need it the most, which is when they stop earning a salary.”
He added that the recent AIA Survey on middle class hopes and aspirations saw 35% of respondents saying that saving for retirement is one of their top life goals, while 33% of those surveyed considered saving for a comfortable retirement to be one of the most difficult life goals to achieve.
In addition, those surveyed believe that they need to save RM1.9 million to retire comfortably, on average.
Not everyone agrees with the EPF’s proposal.
An actuarist KINIBIZ spoke to had this to say on the subject: “I think the full withdrawal age should be maintained at age 55. Having the minimum retirement age extended to age 60 doesn’t necessarily mean that the participant should be disallowed from full withdrawal at age 55.
“For anyone who choses to work in a slower pace of environment at the age 55, they would be able to make use of their EPF withdrawal and choose the lifestyle they want to live.
“The retirement could have been planned for many years and with this change, it could have substantial impact on one’s retirement planning. This definitely has to be taken into consideration,” he said.
The actuarist also highlighted that EPF is only focusing on its members having sufficient retirement funds.
“In my opinion, retirement is related to the choice of lifestyle post-retirement. I do not think most Malaysians are prepared for retirement, mainly because Malaysians do not have a clear idea how much savings would be sufficient upon retirement, and how that relates to a person’s choice of lifestyle and discipline after retirement,” he said.
He added that there has to be more guidance on retirement planning rather than just having more money in EPF account at the retirement age.
However, it would seem that part of this problem can be solved via EPF’s proposal to increase the withdrawal age gradually, so that those who have planned for withdrawal at the age of 55 are not very badly affected.
For instance, if the first increase to 56 takes place only three years from now, those wanting to get all the money at 55 can do so for the next three years at the end of which the withdrawal age increases only by one year.
Also part of the concern about not being able to withdraw at 55 appears related to lack of confidence about what EPF will do with the money of its members. But EPF’s track record in terms of paying members who want to withdraw is so far unblemished.
So is EPF championing the right cause with the wrong approach? Or is the public simply not aware enough of the reasons behind EPF’s concerns? What are the flaws in its approach to raising the withdrawal age and what are the alternatives? Our next article explores these in greater detail.
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