LETTERS: Considering expected price increases, outpatient medical bills, and other necessities, Malaysians would need a minimum of RM600,000 to have a dignified retirement in Kuala Lumpur in the next few years, according to the Employees Provident Fund (EPF).
Even in the most affordable place to retire, Alor Star, a person would need RM480,000.
Take into account that only four per cent of EPF contributors could afford to retire with at least RM600,000 in savings. And, among contributors aged 54 years or older, about half have less than RM50,000.
Because Malaysia will be an ageing nation by 2044, it is more important than ever to build the necessary infrastructure to ensure that current and future older people live with dignity. This includes guaranteeing income security during old age.
Sadly, 61 per cent of working-age Malaysians do not save in retirement schemes or have any form of guaranteed income during old age.
In Malaysia, only two elderly groups are guaranteed some income, which is tax-funded and does not require individual saving:"POOR" elders who are eligible for Financial Assistance for Elderly or Bantuan Warga Emas (BWE); and, PUBLIC sector employees who are eligible for pension.
Others have to rely on individual efforts to save, either in the EPF or other voluntary saving schemes.
Those excluded from the formal retirement ecosystem are collectively referred to as the "missing middle". They are not poor enough for BWE, they are not civil servants entitled to pensions, and they are working without employers who can co-contribute to EPF.
Those with inadequate savings must find ways to stretch their budget amid rising living and medical costs.
Among the proposed solutions to bolster EPF savings are increasing the employer's contribution for low-wage workers, applying higher dividend rates for low savings, and lengthening the contribution period to the age of 65.
However, these measures would only assist EPF contributors, who represent one third of Malaysia's working-age population.
The World Bank similarly suggests increasing the retirement age to ensure older people continue to earn and save.
However, we need to address the existing coverage gaps, not just through small, incremental fixes to the existing system but through major reforms. A social insurance pension (SIP) model would be a more enduring approach towards achieving full coverage for basic income security during old age.
In this model, everyone consistently contributes a small amount to the SIP fund from early on and throughout their working years.
For those who are unable to contribute, such as unpaid caregivers, the unemployed or those with very low income, the government should step in to ensure continuity of contributions.
By contributing early, this will give time for the fund to grow. Once the retirement age is reached, contributors can reap the benefits and receive a lifetime monthly basic pension.
This benefit can be used to cover basic needs, and one's own savings can "top up" the basic income in order to live more comfortably.†
At the same time, there are growing calls to introduce social pensions in Malaysia, avoiding the complexity of the contribution model. It is similar to the BWE, which is a tax-funded periodic old-age benefit for the poor, but expanded to cover everyone.
The main hindrance to a universal social pension is the cost. But Malaysia has a window of opportunity to prepare early.
If we start building the collective fund now with the new working-age cohort, we can expect to be able to guarantee a basic income for them when they reach retirement age in the next 30 to 35 years.
Whatever the choice may be, the conversation and action must start now.
JARUD ROMADAN KHALIDI PUTERI MARJAN MEGAT MUZAFAR
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