Most people will not have saved enough to retire without a loss of living standard. -NSTP file Pic
Most people will not have saved enough to retire without a loss of living standard. -NSTP file Pic

When the Employees Provident Fund (EPF) announced that almost half of its members have less then RM10,000 in their accounts, one is worried.

The minimum retirement age is 55. Even if people work for another 10 years, they are not about to make the RM250,000 that EPF thinks that they should have saved to retire on.

Which is a flawed assumption. Longevity, which is today the norm, will need more than a quarter of a million ringgit, taking into account the high likelihood of inflation and healthcare costs over the years of retirement.

In short, most, excluding some three per cent of EPF members, so says the EPF itself, will not have saved enough to retire without a loss of living standard.

In fact, many will be thrown into poverty if all they have is themselves. And, under these post-pandemic circumstances things are looking more terrifying because some, even while contributing to the EPF, have depleted their savings.

Hence, EPF's efforts at preventing a catastrophe where the landscape is cluttered with pockets of impoverished retired elderly citizens living hand to mouth.

EPF has put forward strategies to better its performance as an investing body and as guardian of the people's forced savings.

There is the intention of pursuing a solution without inflicting pain. For example, to expand mandatory coverage, EPF will include groups not included, like the informal sector and contract workers, thus increasing its investment potential.

To resurrect tax relief for EPF is another proposed strategy. Retirement and ageing are two factors that do not mix well.

Increasing dependence on others for care and financial support is an ugly combination. While EPF provides a lump sum to be spent over however long one has left to live, the pensioner is more fortunate. The government ensures a monthly payment to sustain life and allow for easier planning. The EPF payout, on the other hand, demands wisdom.

Where the payment is large enough, the individual faces the challenge of investment. Still not easy. Where it's small and the individual is without family support, the future is dire.

And yet, members are at the mercy of EPF in terms of outcome of their forced savings. Millions are collected monthly to be invested in the market. It is the returns from these investments that determine the dividends and interest gained from the invested savings.

Yes, expanding the mandatory cover will increase total investments. But, even with more capital to invest, it does not mean that wisdom stalks the decisions made on portfolio choice.

Given the huge investment capital available, one should expect the dividends to be large enough to ensure that the annual earnings of each member can be a substantial nest egg.

Stories of hedge funds harvesting massive profits from the market are examples of how vast the potential can be. Indeed, the investment policies of the EPF are to prevent risks, which is as it should be.

But, is there no way of improving investments while keeping risks low? And, this too — while our forced savings are pivotal in providing a secure future for retirees, the problem of the welfare of senior citizens is not a simple lump sum payment to be managed over a long period as needed. The problem needs a holistic solution.

In Scandinavian countries, where standards of care for the elderly rank among the finest in the world, the approach is holistic and includes housing, healthcare and where necessary, companions and also financial allowance.

In short, senior citizens who are without family support get social welfare care from the government. Japan, for instance, earns much praise for its protection of people's dignity.

Therefore, while EPF is very necessary, it cannot on its own stand guarantor for the wellbeing of the elderly. The needs of senior citizens encompass more than mere money.

What I saw when I spent time in a home-care facility recently was senior citizens needing more than a roof over their heads.


The author is a former NST leader writer

The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times