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PETALING JAYA: Concerned about the low average retirement savings of Malaysians in general, the World Bank has proposed that the minimum retirement age for Employee Provident Fund (EPF) savings be gradually raised to 65 years.
In addition, the institution has also recommended that all contributions be converted entirely into retirement savings and that balance withdrawals be introduced in stages to ensure that taxpayers have enough in their old age.
Currently, the minimum retirement age for full retirement is 55. Contributions are deposited into two accounts, namely Account 1 (70%) for retirement purposes and (30%) for Account 2, which can be used for medical, educational or home loan withdrawals.
For those still contributing after age 55, the funds will go into a separate account, called the Emas Account, which can only be withdrawn after the taxpayer turns 60.
In an online release of its report titled “A Ray of Light: Productive and Inclusive Aging for Malaysia”, the bank said this, among other measures, was necessary to increase the average balances of older people to ensure that savings retirement could be sustained for a longer period.
“In the long term, the minimum retirement age for EPF could be gradually increased to 65 through a well-considered transition process, for example over a 20-year period, which of course should start in the short or medium term,” said the report.
“You should also explore annuity and longevity insurance options in addition to this. Over time, the EPF contribution rate could also decrease as the benefit-eligibility age increases, provided an increase in coverage and adequacy is observed. “
The report said these measures were necessary as the Covid-19 pandemic could increase the vulnerability of older people while reducing their retirement savings by lowering the contribution rates of the EPF, withdrawals from the accounts of the EPF and declining asset prices.
However, it recognized the fact that reduced contribution rates to the EPF and early withdrawal modalities from its accounts formed an important part of Malaysia’s response to the pandemic.
The World Bank also recommended the creation of a comprehensive tax-financed social pension program to boost income security for the most vulnerable Malaysians among the elderly.
For example, it suggested that a selective pension of RM350 per month be awarded to B40 elders using the existing Bantuan Sara Hidup system.
The report says that despite gradual efforts to expand EPF coverage, many low-income Malaysians may still be marginalized.
During the online presentation of the report, World Bank Group Human Development Practice Leader Achim Schmillen said Malaysia already has strong institutions to ensure income security for older people.
However, the study found that contributions to such retirement funds were slightly below international trends: about 40% of Malaysia’s workforce was uncovered.
“So it’s a huge political agenda to ensure adequate income security in old age for the B40s.”
Other recommendations of the report for better income security include having clear and integrated systems for the protection of the income of the elderly, with defined roles for the different institutions that provide the service.
In addition to expanding coverage, the report also recommended registering all workers with EPF before the government grants business licenses or government contracts.
In addition to the findings on income security, the report also said that without proactive policies for aging populations, a third of the expected decline in the country’s GDP growth in the future could be due to aging.
This is due to slower population growth and lower expected labor force participation among the elderly as the country becomes an aging population.
The report predicts that 14% of Malaysia’s population is expected to be over 65 by 2044. By 2065, Malaysia will be a “super-aged society”, with more than 20% of its population over 65.
The report also noted that aging threatens to increase poverty and vulnerability among older people, especially those who are frail and in need of elderly care and long-term care services.
