March 2, 2021 @ 9:00am
KUALA LUMPUR: Draining retirement savings from the Employees Provident Fund (EPF) Account 1 serves to underscore how financially ill-prepared some Malaysians are for rainy days, even before the Covid-19 pandemic began.
Such a move during the pandemic would only compound the negative effects on Malaysians as they had barely enough savings in Account 1 to tide them through retirement, said the Federation of Malaysian Consumers Associations (Fomca).
Fomca chief executive officer Datuk Paul Selvaraj, describing the situation as "dangerous", said based on reports, 67 per cent of Malaysians were unable to meet the minimum amount of RM240,000 in savings on retirement.
Some 42 per cent of Malaysians, he said, solely depended on Account 1 funds and had no other form of savings or revenue.
"While the measure to ease their financial burden now is good, it is going to be very tough on them when they hit retirement age.
"This is a dilemma as whatever savings they have will be little and may be exhausted within two to three years.
"The money channelled to Account 1 is a form of forced savings and in principle, should not be touched until one's retirement.
"However, with 30 per cent Malaysians said to have withdrawn close to all of their savings, it shows how unready we are for emergencies.
"It proves how saving for retirement is not taken seriously as the amounts are low.
"They are forced to dig into their long-term savings, which is not good, and such situations expose how it (saving for retirement) is being neglected," he told the New Straits Times.
On Saturday, EPF chief executive officer Tunku Alizakri Alias revealed in the EPF Financial Report 2020 that nearly 30 per cent of members could have taken out almost all of their Account 1 retirement savings since March last year, leaving only RM100 as part of the condition.
He added that some 60 per cent of members were also expected
to use money from Account 2, which was dedicated for home purchase, medical and education expenses.
Paul urged the government to play an active role in educating the people on the importance of retirement savings, especially among young workers.
The best way forward, he said, was to intensify education on alternative retirement savings such as the Private Retirement Scheme (PRS), which would complement the contributions to EPF, as the current pickup volume was not satisfactory.
"Empowering consumers to manage their finances is crucial, which would lead to the realisation that they, in fact, have not saved up enough.
"We need to stress that apart from EPF, one should have other forms of savings to face crises such as job loss, emergencies, long-term needs and also retirement. It is better to have money in the pocket," he said.
Sunway University Business School of Economics Professor Dr Yeah Kim Leng said the high number of EPF contributors who had emptied their Account 1 savings was worrisome.
He said it meant that a high proportion of the population could end up with insufficient savings on retirement, which was concerning from a national social safety net perspective.
"The affected individuals would need to better plan and rebuild their savings, including extending their working life and having spouses supplement family income.
"Besides boosting sources of income, they will need to tighten their purse strings and set aside more savings to make up for the projected short fall in retirement funds," he said.
National Council of Senior Citizens Organisations Malaysia (Nascom) deputy president Datuk Dr Soon Ting Kueh said the government should consider a plan for members to re-contribute to Account 1 when their financial situation permits.
He suggested that contributors could kickstart an initiative with EPF's announcement on Saturday of a 5.2 per cent dividend for last year.
Soon expressed concern over the lack of funds in EPF members' Account 1, which would cause problems to contributors unless they, as well as the government, were willing to extend their working years to age 65, as previously proposed by Nascom.
"This way, they can be less dependent on their savings or welfare, and can continue to contribute to the economy.
"The government could also be left to shoulder financial burdens if the contributors resort to depending on welfare support as they do not have enough money. That would be a heavier burden to the government.
"The government should seriously look into the financial security for retirees as we will reach a senior citizen society by 2030 or 2035, where we have 14 per cent of the population aged over 60," said Soon.
Source: https://www.nst.com.my/news/nation/2021/03/670207/lack-savings-major-concern
