‘Don’t have too much savings’: Malaysians dip into retirement funds in their millions

“I know I don’t have much savings for my retirement, but we really needed the money at that time,” said the car mechanic, who earns about 3,000 ringgit (US$636) a month and withdrew 1,000 ringgit from his EPF. his. account.

In the first year after the restructuring, 25 billion ringgit is expected to be withdrawn from the EPF, which had about 1.19 trillion ringgit under management at the end of last year.

Private sector employers are required by law to match their employees’ monthly contributions to the fund, which was established in 1951. Civil servants have traditionally been covered by a separate, tax-funded pension scheme, but the government has announced plans to eventually pass them on to EPF as well.

As per the recent changes, 75 percent of the monthly EPF contributions are ring-fenced and cannot be accessed until the account holder attains the age of 55; Another 15 percent can be withdrawn for specific purposes such as housing, health care and education; and 10 per cent may be withdrawn at any time for any purpose.

Anwar’s administration introduced the new withdrawal structure amid growing public anxiety over rising living costs and low wages, and as many Malaysians are still recovering from the financially lean years of the pandemic.

Nearly a quarter of all EPF members aged under 55 used the new “flexible account” facility last month, withdrawing an average of 2,382 ringgit, according to the Finance Ministry. In November, the ministry warned that 6.3 million EPF account holders in this age group had savings of less than 10,000 ringgit.

The average amount received “suggests a lot of small withdrawals from low-income groups that really need the money,” said Geoffrey Williams, an economist at the Malaysian University of Science and Technology.

“They will soon run out of funds … because low-income groups can only transfer a small amount. This will help in the short term, but it will not solve their financial problems in general. “

This will help in the short term, but will not solve their financial problems overall

Cassey Lee, a senior fellow and coordinator of the ISEAS-Yusof Ishak Institute’s regional economic studies program, said overuse of the short-term withdrawal facility could fuel inequality in the future and create “greater pressure to provide income support for pensioners who had earned lower incomes”. .

Experts are increasingly concerned about widespread poverty among Malaysia’s elderly, particularly low-income retirees, who may have little choice but to re-enter the workforce to supplement their savings. By 2030, the government expects about 15 percent of the population to be 60 or older.

About 3.8 million people had already reached retirement age as of last year, according to government estimates. The Malaysian Federation of Employers expects this number to double to 7.3 million by 2040.

Economists blame wage stagnation for the poor savings rate among Malaysians, with the bottom half of earners seeing real wages rise by just 500 ringgit from 2010 to 2019 – just 56 ringgit a year, a 2023 study by the Institute found Research Khazanah.

While the government increased the monthly minimum wage by 25 percent to 1,500 Ringgit in 2022, this still falls short of the poverty line of 2,208 Ringgit and the living wage of 2,700 Ringgit proposed by the central bank in 2018.

“The biggest structural problem facing Malaysia is low income,” said Williams, the economist.

A post-pandemic rise in living costs has only created further pressure on low-income earners, fueled in part by wars elsewhere and the ringgit’s continued weakness against the US dollar.

Malaysia’s heavy reliance on food imports has further exacerbated the cost of living crisis, while necessary but painful subsidy cuts have not helped matters either. Recently, the government eliminated general oil subsidies.

“The rise in the cost of living post-Covid-19 has been quite rapid and this has led to further deterioration in purchasing power for some,” said Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat – particularly “among those in the group with low income”.

However, not all Malaysians who have set up their new flexible EPF accounts with us are struggling financially. For some, this represents an opportunity to pursue personal interests, as was the case for civil society activist Syahmie Fayyadh Jaafar.

He withdrew 1,000 ringgit from his EPF to fund a recent trip to Sabah, where he led initiatives with partner organisations. Syahmie sees his flexible account as a “potential adventure fund” to cover costs ranging from professional development to weekend getaways.

“I like to think of it as a ‘treat yourself’ moment, funded by my future self,” he said.

However, for millions more, the EPF not only exists to ensure comfortable retirements, but should also help them achieve that goal, according to Bank Muamalat’s Afzanizam, who said the government will need to steer its policies to create more targeted cash aid and welfare. .

ISEAS-Yusof Ishak Institute’s Lee said the real challenge will be setting policies to ensure wages rise in proportion to rising living costs.

“There will be more pressure on the current government to get it right on labor market reforms aimed at raising workers’ real wages,” Lee said.