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PETALING JAYA: The Employee Provident Fund (EPF) was urged to undergo a makeover following comments from the Finance Minister that the EPF has not been a credible scheme for many taxpayers.
Finance Minister Tengku Zafrul Aziz said in an interview that 42% of taxpayers had less than RM 5,000 in their Account 1, and 32% of that group had RM 1,000 or less.
Currently, 70% of a person’s total contribution goes to their Account 1, which they cannot access until age 50, and the rest goes to Account 2, which can be used to help pay for the first house, the education expenses and medical bills.
Geoffrey Williams, a professor of economics at HELP University, told FMT that the current EPF system is long overdue for a change and argues that, given the information expressed by Tengku Zafrul, now might be the time to act.
He suggested “a complete overhaul of the social welfare system” that would “create a universal market-friendly system of social protection.”
The first step would be to stop all forms of retirement and treat the EPF more like a pure pension plan rather than a savings plan to ensure that people retire with a healthy balance to draw on.
It was recently announced that taxpayers who had lost their jobs could withdraw up to RM500 a month from their Account 1 for the next 12 months in light of the economic stress caused by the pandemic, but Williams disagreed with the scheme.
“We need direct allocations to put money in the hands of the rakyat now, not ask them to use up what little savings they have,” he said.
Robert Foo, owner of a financial planning company, said he has often asked the Securities Commission for changes so that people can direct their mandatory retirement contributions to private or self-managed funds.
“It is a fact that many people do not have enough in their EPF when they retire. After they retire, their EPF generally only lasts for about 3 years, ”he said.
He said there was resistance to his suggestions due to the government’s reluctance to allow big players to enter the game, as well as fears about the amount of money that would leave the country and end up in investments abroad.
“I have told the Securities Commission to let people take the risk (of managing their own pension).”
Williams said the changing job landscape was one reason for EPF’s low totals, as the self-employed or those working in the gig economy may not make regular payments.
Low wages and cash-on-hand arrangements also play a role, he said, as contributions can be very small or not made in these situations.
