Experts believe that raising the retirement age from 60 to 65 years is one way to address the low retirement savings crisis. They urged to government to also look at the social aspect and extend a protection system to those without a sufficient retirement nest egg. According to statistics, 35% or 94,827 of 274,715 Employees Provident Fund (EPF) members aged 54 years, have less than RM10,000 in savings while only 2% or 4,877 members from the same age group had over RM1mil.
Professor Dr Chung Tin Fah of HELP University described the data as “very disturbing” and said the affected group would have to work much longer beyond the current retirement age. “The government should extend the retirement age of the private sector to 65 years, if possible to 70,” he said when contacted by The Star yesterday. Low starting wages and annual increments as well as no prospects for switching to high-paying jobs were among the factors behind the low savings, he added. “The mandatory 11% plus 12% EPF contributions from monthly income is considered reasonable when benchmarked internationally,” he said. Prof Chung urged the government to address the needs of seniors who did not have enough savings for their medical bills, food and utilities.
Emeritus Professor Datuk Dr Norma Mansor agreed that extending the retirement age was an option. Norma, who is also the Malaysian Economic Association president, said another option was for the government to top up retirement savings of 54-year-old EPF contributors on condition that there be no more withdrawals from their Account 1. She also proposed the government look at the overall social security ecosystem and consider introducing a social pension for every Malaysian, to be paid to an individual upon retirement for as long as they lived. “We should start planning for that because only 60% of the labour force is covered under EPF while the other 40% are self-employed. They may have savings but from our research, it is very small,” she said. Norma said a country like Malaysia that was on the cusp of becoming a high-income nation must think about the 40% who might not have any income when they retire. “To have social protection is to prevent Malaysians from becoming poor,” she said, adding that the government would also need to generate a bigger revenue to fund education, health, infrastructure and social protection as Malaysia was among the lowest tax revenue collectors in Asean at just 11.8% of the gross domestic product (GDP) in 2021.
The director of the EPF-endowed Social Wellbeing Research Centre (SWRC) at Universiti Malaya, however, said it must be done in phases and “not a straight shot to 65.” “The retirement age must be indexed to life expectancy. This is what many countries are doing,” she said, adding that Singapore was also increasing the retirement age in stages. In 2022, Singapore raised the retirement and re-employment ages to 63 and 68, up from 62 and 67 previously, as it planned to progressively raise the ceiling for both to 65 and 70 respectively by 2030.
Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said that although raising the retirement age would help, this option needed careful consideration, especially for civil servants as annual pension payments were increasingly burdening the federal budget.
The government is also considering moving from defined-benefits to defined-contribution pensions, he said. Lee said it was a “worrying sign” that the majority of 54-year-old EPF members did not have enough to retire. “It’s telling us that a lot of people who are about to retire in six years definitely cannot retire at all, with only RM10,000 in their accounts.
“With only a few years left, they would not even be able to meet the basic threshold of retirement savings which has been set by EPF at RM240,000,” he said.
The figure was set by EPF effective Jan 1, 2019, as the minimum basic savings target members should have upon reaching 55. Lee said many contributors had low savings in their EPF accounts due to Covid-19 related withdrawal programmes and it would take time to rebuild their savings. With not enough money to retire, they would have to continue working beyond retirement to supplement their income, he added.
Economist Emeritus Professor Dr Barjoyai Bardai said raising the retirement age to 65 could help contributors as life expectancy has also gone up. However, the social protection system should be strengthened, he said. “The government should create its own endowment fund to provide protection for retirees against matters such as health and incapacitation and they can get some income from this social protection system,” he suggested.