ABOUT 40 per cent of Malaysia’s labour force contribute RM23 billion per year to the Employees Provident Fund (EPF). In the past decade, EPF gave a return of between five and seven per cent per annum.
EPF’s assets may reach RM1 trillion in the next few years but it will dip as retiring baby boomers will soon withdraw their funds. Hence, it’s high time the modus operandi of EPF is reviewed in the interest of the working class.
The large-scale withdrawals will force EPF to sell off its domestic holdings of equities and bonds. None of the domestic institutional investors have sufficient capital to acquire EPF’s divested assets. Hence, foreign institutional investors could snap up EPF’s divested domestic equities and bonds at a lower price.
The influx of foreign capital may boost the ringgit immediately but in the long-term, foreign ownership will repatriate our profits, capital gains and dividends. Currently, these profits are given back to the working class by EPF.
A high level of foreign ownership has strong correlation with low compensation of employees.
According to the Shared Prosperity Vision 2030, Malaysia’s foreign ownership is close to 50 per cent while the compensation of employees is 35.7 per cent.
The Minimum Wages Order 2016 and Minimum Wages Order (Amendment) 2018 remain the reasons the compensation of employees has yet to fall drastically. The EPF should consider replacing lump sum withdrawals with a combination of partial withdrawals and monthly living pensions.
A monthly payout till death will prevent old age poverty and a return to the workforce as most retirees use up their money within the first few years.
The EPF can continuously invest the capital to pay higher pensions periodically to cope with rising living costs. However, the EPF should only withhold the necessary retirement fund of contributors to invest and pay monthly pensions.
EPF should introduce “social justice dividends” whereby those with lower wages but closer to retirement age receive a higher dividend rate compared with those with large savings.
In 2016, 28,727 EPF members (0.4 per cent of the total) had an average of RM1.64 million in savings while 66 per cent of members had less than RM50,000.
Retirement funds of both husband and wife should also be allowed to consolidate. EPF should remove the RM60,000 self-contribution annual limit to allow self-employed contributors to save more in their early ages. This will motivate individuals to save their one-off windfalls such as inheritance, lottery, sales of assets, bonuses, termination benefits and others.
EPF could also cap the cumulative lifetime self-contribution at RM500,000.
Central Commitee, Parti Sosialis Malaysia