ACCORDING to the Employees Provident Fund (EPF), more than three-quarters of Malaysians do not have enough to live comfortably when they retire.
EPF uses a ballpark figure of about RM200,000 that one needs to support himself for 20 years after retirement. This works out to less than RM1,000 a month, barely above the poverty line. To add to the worry, out of 14 million registered members of EPF and Retirement Fund (Incorporated), only seven million are active contributors, as in those who contribute at least once a year. A concern is that many in the bottom 20 per cent of the population are not active members of both schemes. Also, almost 34 per cent of the labour force are not covered by state-sponsored pension schemes.
There are other factors that add to the grim statistics. For one, Malaysia is a fast ageing nation. The bulk of today’s workforce will hit retirement age by 2030-2035, and the snag is that they may not enjoy the same level of financial protection as their parents because of demographic changes.
Population growth has slowed with development. More Malay-
sians are marrying late, with some choosing to stay single. They are producing less, with young families preferring to have two children or fewer. With slower growth, in the coming years, the burden of retirement will be on the shoulders of an increasingly smaller population of the workforce.
Indeed, the demographic shift is affecting social security arrangements. In the future, the family unit would no longer be a reliable source of social security. Unlike the present generation of retirees who enjoy financial security from having a large family, the next generation needs to make serious retirement plans given the much reduced family social safety net.
The need for an adequate retirement fund is also not helped by the slow increase in income. Malaysia’s wage-capital share is low compared with G20 countries. Companies here only spend about 35 per cent of total capital on wages, with the rest kept by companies and shareholders. In most G20 countries, wage as a share of total capital is at more than 50 per cent, with Germany being the highest at 70 per cent.
The changing nature of work
is also disrupting retirement plans. We could see a new generation without a stable income and retirement plans. The geek economy could see more people holding a portfolio of unconventional jobs that rely on the Internet. They might be Uber and Grab drivers, online content providers, copy editors, freelance product designers, consultants and marketers. These jobs do not come with health and employment benefits. The lack of such provisions will, in the long run, burden the state.
How do we ready Malaysians for retirement and to be financially independent? An obvious solution is to push the retirement age. In re-evaluating the retirement age, we need to revisit old assumptions. The previous retirement age of 55 was based on a life expectancy and political economy of a different era. People now live longer, thanks to better nutrition and healthcare. Although the government has increased the retirement age to 60, it is still far from the global benchmark. Improved circumstances now allow for active ageing. Even if some retire early, the state must provide an option for those who are prepared to work beyond the official retirement age.
On that note, active ageing should be a new catchphrase. Malaysia needs to invest in wellness programmes to prepare for the large influx of retirees come 2030-2035. We need to invest in a sporting nation. A sporting nation will take the burden off rising healthcare and retirement costs. An active and healthy lifestyle should be the new national motto.
Wages also need to keep
up with retirement concerns. Malaysia’s wage-capital share, at 35 per cent, is grossly below the global average. Companies need to do more to increase wages. Higher wages could act in the companies’ best interest. An increase of 10 per cent from the present ratio could produce a multiplier effect on the economy and prepare employees for retirement. Of course, increasing the ratio must come with better employee productivity.
This is also a good time to look at private retirement schemes (PRSs). In the long run, PRSs will be the best way to address the uncertainty that comes with the geek economy and changing nature of jobs. With more choosing to be self-employed, PRS could capture the retirement needs of the next generation. The last government budget had provisions to encourage more youth to take up private retirement plans. The announcement fitted well with the plan to develop capital markets, but more needs to be done in publicity and promoting financial literacy programmes.
Addressing retirement requires a holistic approach. Retirement concerns may not be so bleak if financial coverage, changing nature of jobs, demographic change and rising healthcare costs are planned for. The good news is that more are appreciating these issues given the increasing discussions on social security.
Abdillah Noh is an associate professor at Tun Abdul Razak School of Government, Universiti Tun Abdul Razak. He specialises in policy innovation, public policy and political economy