LETTERS: The Employees Provident Fund's (EPF) restructuring of members' accounts from two to three — Akaun Persaraan, Akaun Sejahtera and Akaun Fleksibel — is a refinement of Malaysia's retirement savings scheme.
The newly created Akaun Fleksibel allows members to utilise savings as and when needed, contrary to the other two accounts that have age and use limitations for withdrawals.
The five per cent increase in the contribution to Akaun Persaraan (previously called Account 1) to 75 per cent underscores EPF's commitment to prioritising adequate retirement income. The 75 per cent rate is relatively higher compared with schemes in some neighbouring countries.
However, there is the likelihood of members making full or continuous withdrawals from Akaun Fleksibel, resulting in a zero balance and worsening savings inadequacy.
In light of Malaysia's rapidly ageing society and serious concerns about the adequacy of old-age income security, there should be broader reform of the retirement ecosystem.
It is timely to review the EPF's existing withdrawal age policies considering that some them were determined in the 1950s, when life expectancies were much lower.
For example, the full withdrawal age at 55 years was set in 1952, when life expectancy was 54.2 years.
Our life expectancy has now increased to 75 years. This means that the retirement savings need to be adequate to sustain life for at least 20 years after full withdrawal age.
Other potential initiatives could also include deepening progressive contributions and introducing progressive dividends.
Our analysis indicates that increasing the contribution period through a higher retirement age is expected to have the largest impact on members' savings, followed by progressive dividends and progressive contributions.
Beyond these, it is essential to emphasise that Malaysia's multi-tiered retirement ecosystem has yet to fully achieve its intended objectives and continues to grapple with coverage gaps, inadequate benefits and unsustainable financing.
The tax-funded old-age pensions cover only civil service retirees (via the civil service pension) and selected poor elders (via the Bantuan Warga Emas). Funding these pensions is challenging, particularly with the looming ageing population.
Additionally, while EPF is meant to cover private sector workers, many remain unregistered, and among those who do, many have insufficient savings for a comfortable retirement.
One alternative that can be considered is a contributory pension within EPF schemes i.e. a hybrid of defined benefit (DB) and defined contribution (DC) scheme.
Through this, retirement savings are done collectively rather than individually, with everyone putting in a small amount when they are working into a collective fund.
By a certain age, say 60 or 65, the fund can be dispensed to all as an old-age pension until their end of life (an annuity).
The government plays an important role in ensuring continuity of contribution across a lifetime when we are unable to contribute e.g. having illness or disability, being laid off, and performing child or elderly care.
Ultimately, Malaysia must seriously consider moving towards a model where we minimise our individual risks and maximise our collective potential as we move towards a more ageing society.
HAWATI ABDUL HAMID and PUTERI MARJAN MEGAT MUZAFAR
Researchers
Khazanah Research Institute
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times
