Employees must be given an automatic option to top up their retirement savings.

AMID the ongoing debate on the retirement age, I draw the attention of policymakers, politicians and the public to one of the key issues - the retirement savings of Employees Provident Fund members (private sector/non-pensionable public sector employees and the self-employed) and those without old-age financial protection.

In 2015, about 80 per cent of EPF members who turned 55 did not have sufficient savings in their accounts to live above the poverty line.

A survey conducted in April this year showed that two-thirds of EPF members in the 51-to-55 age bracket did not have savings of RM240,000 for retirement despite approaching the age where members could opt for full withdrawal from the fund.

A total of 38.1 per cent of respondents in this age bracket had RM60,000 or less in their EPF accounts (up to Dec 31 last year).

Workers with more than 20 years of EPF membership were vulnerable,too, as 19.7 per cent of them had only RM60,000 or less in their EPF accounts.

To address this issue, I recommend the use of behavioural insights/nudge (introduced by Richard Thaler, 2017 Nobel Prize winner in economics), such as a percentage increase in employee’s contribution whenever he receives a pay rise.

This should be set as an automatic option to boost retirement savings, but the employee can choose to opt out.

This approach,designed to improve decision-making, must be used with other behavioural intervention recommendations, thus offering cost-effective, practical and innovative solutions alongside existing policies.

It is also recommended that instead of using minimum wage as the benchmark for low-income groups, employers adopt the concept of living wage,taking into account the variations of cost of living based on household size, geographic location and other factors.

M. A. HAMID

Universiti Malaya, Kuala Lumpur