By G. Sharmila
Yesterday, Prime Minister Najib Abdul Razak announced that the full withdrawal age for the Employees Provident Fund (EPF) members will remain at 55, This is what the public had said it wanted prior to the online consultation carried out by EPF beginning April 21. Yet experts believe that the majority of the Malaysian public is not prepared for retirement. Has the PM jumped the gun at the expense of the rakyat?
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The Employees Provident Fund (EPF)’s proposal to increase the full withdrawal age for its members from the existing 55 to 60 was controversial from the start, with many members vehemently opposing the very idea.
Yet in our last article, it was clear that EPF was coming from a place of reason, supporting its proposal with numbers to prove that many of its members have insufficient savings by age 54 even.
EPF began an online public consultation on its website on April 21, which was to continue until May 5.
The idea was to give its members a say in whether they wanted the withdrawal age limit increased to age 60 from 55 on a staggered basis over a 15-year period, or for the full withdrawal age to remain at 55, with an option for members to continue parking their money in EPF and to withdraw the full amount at age 60.
Najib Abdul Razak
In an unexpected twist, Prime Minister Najib Abdul Razak announced during his keynote address at the Invest Malaysia 2015 conference yesterday that the withdrawal age would remain at 55.
He said that in just two days of the EPF’s online consultation process, more than 50,000 Malaysians had given their views. He also said that EPF would begin offering Syariah-compliant investment options to its members in 2017, which was also proposed by EPF via its online consultation.
In a statement yesterday, EPF said that it supported the PM’s support for the members consultation exercise and that it acknowledged the preference for the second option.
“This is definitely in line with our preliminary findings of the members’ consultation survey which overwhelmingly indicated the support for option two (2) under our proposal. The option offers retaining the full withdrawal age of 55 years and to lock in new contributions until the age of 60,” said EPF chief executive officer Shahril Ridza Ridzuan.
Shahril Ridza Ridzuan
He added: “We strongly urge members to continue with their response to our survey as there are other enhancement initiatives proposed. We want to make sure our members’ voices are heard on all major initiatives that will have direct bearing on their retirement savings.”
Commenting on the subject, a wealth planner who declined to be named told KINIBIZ: “From the beginning, if they had wanted to increase the (withdrawal) age limit, they should have explained to people the rationale. From 1983 to 2014, the annualised return of EPF returns is 6.5%, however inflation was around 2% to 3%. Is a mere 3%-plus return enough for most investors?”
He explained that most members if they already had too little saved in their EPF accounts, would not be able to increase their savings by much if they waited for another five years before they could withdraw the full amount. “They may as well put their money in ASB (Amanah Saham Bumiputera) or PNB (Permodalan Nasional Bhd), each which offers an annualised return of 14%,” he said.
“Instead of increasing the withdrawal age limit, EPF should support financial literacy and education at school level, to fresh graduates and the general public so that people don’t wind up with too little saved for retirement,” he added.
Wong Boon Choy
Wong Boon Choy, CEO and executive director at Manulife Asset Management Services Bhd told KINIBIZ via email: “In my opinion, for individuals who are nearing their retirement, option 2 which allows withdrawal at 55, will probably be more acceptable without affecting their financial plans.”
He also believes that most Malaysians are not prepared, citing the company’s quarterly survey.
The Manulife Investors Sentiment Index Q3 2014, he said, showed almost 60% of investors stated that they have not yet started planning for their retirement.
“We’ve also found that on average, most people expect to have saved approximately RM275,905 as at retirement, and expect those savings to last 18 years, or an average of RM1280 per month.
“Match that against or actual retirement savings – according to EPF, contributors have an average savings of just under RM167,000. As the average Malaysian is expected to live until 75, retiring at 60 with that amount would mean surviving on just RM700 a month for the rest of their days,” he said.
Wong explained that the gap between expectation and reality can be attributed to not making accommodations for longevity, sudden expenses that arise from old age, and not having a plan to understand how much they need to sustain themselves in retirement.
“Nonchalance about retirement can be attributed to youth as our average population is still fairly young with a median age of approximately 28 years. At this age they will have conflicting financial needs such as owning a home, starting a family and financing their vehicles. Nonetheless, they should leverage on youth to start their planning early,” he advised.
This brings us back to the retirement paradox we touched briefly on in our previous article: people think they are ready to manage their retirement funds, but are truly not, it seems.
However, the fact remains that people ought to be given a choice to withdraw their money at age 55 or 60 and with the PM’s announcement, this has been taken care of, so to speak.
Or has it, really?
At press time, EPF still hadn’t responded to KINIBIZ’s queries on whether the age 55 withdrawal limit would be maintained, or if it had yet to decide on the matter, pending the full findings of its public consultation process.
Hence, EPF may very well decide to increase the retirement age to 60 in the end, if that is what the public wishes.
But that does not seem likely and the ultimate loser might well be the unsophisticated EPF member who has little in terms of savings, Such investors form the majority of EPF members with 68% having RM50,000 or less at retirement.
But the PM has effectively jumped the gun, bringing the decision process to a premature close.
Yesterday: Why EPF wants to raise the withdrawal age
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