KUCHING: “It is never too early to think about retirement” – such a quote may not be deemed relevant by graduates or young entrants to the workforce.
However, such is the reality of long term financial planning, whereby it is necessary to start at a young age and stays relevant at each key life stages.
Emphasis should be placed on preparing for your older days. As age catches up, we need to plan and prepare for a comfortable life beyond our career’s span.
This is glaringly pertinent for Malaysia as its ageing population – which is expected to account for 15 per cent of the population by 2035 – could bring about massive impact to the country’s economic health.
According to DM Analytics managing director and chief economist Dr Muhammed Abdul Khalid, Malaysians aged above 60 years and above now account for eight per cent of the population.
He said the speed at which Malaysia’s population was ageing was the fastest in the world.
“Malaysia’s population problem is a serious issue that is not being given enough attention. By 2050, we will be in serious trouble.
“The entire structure of the economy and ideology needs to be changed, because in future, when we have less workers, it means we are going to collect less tax which will translate to lower capability for expenditure.
“Who is going to finance this?” he said to reporters at a forum on ‘Malaysia’s Population in 2050: What Does This Mean Socio-Economically?’ in April.
He said Malaysia presently did not have a comprehensive policy to address the ageing population issue.
In addition, the country’s fertility rate, which currently stood at an alarming rate, could provide additional pressure on productivity and consumption, going forward, thus impacting economic growth.
Low levels of financial literacy
There is a growing concern on the low financial literacy level of Malaysians as measured by financial knowledge, attitudes and behaviour, said Bank Negara Malaysia (BNM) Deputy Governor Abdul Rasheed Ghaffour, based on BNM’s observation on long-term financial planning.
He added that more than 75 per cent of Malaysians find difficulty saving RM1,000 for emergency needs, with the economic uncertainties and high cost of living.
“There should be greater awareness on the importance of saving for the future,” said Abdul Rasheed in April during the launchg of EPF and Credit Counselling and Debt Management Agency (AKPK)’s financial education retirement module.
Based on the Financial Capability and Inclusion Demand Side Survey conducted by Bank Negara Malaysia in 2015, the main observations on the state of financial literacy of Malaysians is that the majority of Malaysians have inadequate knowledge on financial matters to enable them to make informed financial decisions, particularly among the vulnerable groups.
A significant majority of Malaysians also display short-sighted tendencies, it said, and are inclined to ‘live for the moment’ – that is to only focus on instant gratification at the expense of long-term financial planning.
“More than 75 per cent of Malaysians find it difficult to even raise RM1,000 to meet emergency needs,” it added. “Only a quarter of Malaysians have any form of investment; and .ost Malaysians indicated that they will face financial pressure should there be a loss of income.”
Sustainable retirement a major concern in Malaysia
With Malaysia just over 10 years away from being an aged country by 2030, there are concerns that Malaysians have yet prepared for a comfortable retirement and enough savings for their senior years.
EPF chairman Tan Sri Samsudin Osman highlighted that while Malaysians are enjoying an increase in lifespan from an average age of 50 in 1950s to the present average age of 75, the issue is not about longevity, but rather the quality of life as they get older.
“Fourteen years until 2030 is a very narrow window of opportunity for the Malaysian Government to address complex issues, such as social protection and public policy and national infrastructure development, and ensure that our country has a solid social security infrastructure.
“Recognising this as a potential crisis, the EPF has been working closely with various stakeholders to provide input towards the development of policies and legislation in areas relating to social protection such as minimum retirement age and re-employment policy,” Samsudin said in EPF’s Annual Report 2016.
Last year saw the creation of the Malaysian Social Protection Council at the end of 2016, the result of conversations facilitated by the EPF among key stakeholders for the past few years.
The council will oversee the development of a robust social security platform to cater for all Malaysians.
In 2016, EPF also actively engaged at the grassroot level and communicating the importance of financial and retirement planning through its Public Briefing Programme 2016 and Preparation for Retirement.
As at December 31, 2016, a total of 213 public briefing sessions were conducted, reaching out to 14,782 participants on topics related to financial and retirement planning, while covering EPF products and services such as Retirement Advisory Service (RAS).
On the issue of sustainable retirement, RAS advisor Ronney Khairuddin had recently highlighted at a talk ‘Retirement Advisory Services – Your first step to retirement planning by EPF’ that as many as 65 per cent of Employees Provident Fund (EPF) members aged 55 had RM50,000 or less in their EPF savings last year.
Khairuddin had described this as a worrying scenario, given that most Malaysians would need more savings for longer retirement days.
“The amount of RM50,000 is not enough to cater for a 20-year retirement period based on a life expectancy of 75 years,” he said.
As such, while the retirement age in Malaysia is 60, Khairuddin said that Malaysians who are still productive can continue contributing to the EPF up to the age of 75.
He also emphasised that this was not the time for Malaysians to spend more but a time to save as much as they could.
According to the EPF, one in three Malaysians does not have a savings account, most do not have enough savings to last more than five years after retirement.
The EPF estimated that at a minimum, a member who is 55 years old must have at least RM228,000 in his or her EPF savings to be able to withdraw RM950 a month based on life expectancy of 75 years.
Whether this amount is sufficient, depends on the individual’s lifestyle.
EPF: Guardians of retirement savings
In comes the Employee Provident Fund (EPF) as it ramps up services to aid in this regard.
EPF had embarked on a financial literacy campaign that expanded its Retirement Advisory Service (RAS) across the country.
“We started off with just two branches in 2014 and have now increased to 18 branches, with more than 40,000 members having used this service (RAS) since its inception,” he revealed to reporters after officiating at the opening of the ‘Retirement Talk with EPF’ event in Kuching last month.
Around 700 EPF contributors used RAS in Kuching this year, he revealed, and pPlans are underway to expand this service to over 20 branches by year-end.
This effort was in line with EPF target to provide such services at almost 50 per cent of its branches nationwide by 2020.
“EPF hopes that its members are more prepared to retire and achieve the (comfortable amount of) basic savings as outlined in the EPF Basic Savings Table with the extension of RAS.”
The two-day programme, organised by EPF in collaboration with the See Hua Group, raises awareness of the importance of financial literacy as part of retirement planning for Malaysians.
Apart from listening to talks on retirement, the public also registered for the i-Akaun, checked their latest EPF statement with the EPF Mobile Team, and met EPF Retirement Advisory Service (RAS) and Credit Counselling and Debt Management Agency (AKPK) officers for free consultation on retirement and debt management.
EPF steps in with RAS
RAS was introduced in July 1, 2014 as part of EPF’s long-term plans to enhance its service delivery and help members achieve a sustainable retirement.
Its long-term objective is to promote awareness on the importance of planning for their retirement as well as advocate financial literacy among EPF members.
“This is essential as the majority of EPF members do not have adequate basic savings by age band, while the average lifespan of Malaysians continue to increase,” EPF said.
“RAS is especially meaningful for members who are nearing retirement age or who have already retired but still have savings with the EPF and are in need of financial advice on retirement.”
Members can obtain advice, free of charge, through RAS on how they can stretch their EPF savings longer and earn dividends through compounding effect.
Rest assured, all of EPF’s RAS officers have been given comprehensive training and have received certification as financial or retirement advisers.
EPF highlighted that aside from providing advice and investment counselling, RAS also carries out awareness and education programmes on basic financial and retirement planning. Additionally, the service helps members with their withdrawal applications.
The group noted that members will benefit from the guidance given on EPF products such as the Flexi Withdrawal scheme as well as an indication on how much they could accumulate if they were to keep some of their savings with the EPF after they retire.
“RAS, however, does not make any recommendations, particularly on investment matters, or promote any other services offered by third parties,” it said.
On another note, EPF also highlighted that some RAS advisers have been put on an attachment with the EPF Mobile Team so they are able to provide advisory services to members located far from EPF branches.
“This initiative has received positive response from members in such areas who mostly have not heard about RAS and its benefits,” EPF said.
In the latest annual report, chief executive officer Datuk Shahril Ridza Ridzuan observed that the expansion of EPF’s RAS to 18 branches nationwide has helped members become more aware of the importance of financial planning to prepare for a more comfortable retirement.
He noted that it has also helped them to know more on how to stretch their savings over their golden years by opting for staggered withdrawal which will help ensure a more sustainable stream of income upon retirement.
“We are now in the midst of preparing to expand RAS to another 10 branches by the end of 2017,” Shahril said.
“By 2018, we target for all 67 branches to be able to provide RAS, and also to be able to reach out to rural communities via electronic and mobile platforms.”
EPF aims annual enrolment of 6,000 for RAS
The EPF aims to annually enroll 5,000 to 6,000 people walking through their doors in its Retirement Advisory Services (RAS) program in Sabah, revealed its CEO Datuk Shahril Ridza Ridzuan.
However, he said EPF could enrol a higher number of people as the target does not take into account its more effective outreach program.
“We find that can be more effective because the people who come through for the EPF services are the ones already approaching retirement. We want to work with the employers to reach out to people who are still in the working life, especially those who have just started working, 20s and in mid career, as it is important to start their financial planning early,” said Shahril.
“Sometimes, we find that those approaching retirement are in situations that are a bit late in the day because they do not not have enough time to accumulate assets for their retirement.
“Our plan is for an earlier reach out to those in their 20s and 30s so they would have the time to adjust their saving habits and plan from an early age towards their retirement at 55 or 60,” he added after the launch of the two-day Retirement Talks with EPF at Suria Sabah Shopping Mall here yesterday.
The RAS centre, open to all members looking to obtain free advice on ways to make their money last longer throughout the retirement years, is located in Kota Kinabalu.
However, Shahril said more staff are being trained to provide RAS as expansion plans are in the pipelines nationwide.
Currently, RAS counters are available in 18 EPF main branches in Malaysia.
“This year we will be rolling out another 12 branches, including some of the smaller towns, with the aim that basically by 2020, our services should be available in almost all our branches throughout Malaysia,” he said.
“Over 40,000 people are already using the service throughout the country and the feedback from our members have been uniformly positive. A lot of people do not realize that there is a lot they need to learn about financial planning and saving for their retirement. So we have not only been doing a lot of work in our branches but also outreach programs.
“Part of the retirement advisory service is not only in branch education, we work with employers as well as teaching at the employer’s premises. That has been effective because employers work with us to identify vulnerable employees who they feel can take advantage of the program,” added Shahril.
The EPF CEO also pointed out that it is important to provide the right information to members so they will have the ability to utilize the right information to access the EPF services.
This is especially important so members do not get duped by ‘agents’ from syndicates offering schemes that are ultimately out to pocket EPF members’ hard earned savings.
“It is serious in terms of its implications to our members but it has not been widely spread. It is concentrated in certain locations among our vulnerable members, that we call easily deceived,” said Shahril.
“The goal of syndicates is to use the schemes to make themselves rich with our members’ money. The money taken is not the government’s or other people’s money, but the members’ own money from their account.
“Syndicates will give a guarantee or recommendation to members that they will be able to withdraw the money fraudulently and they will take 30% or 40% of the money withdrawn. That is one of the tricks used on our members,” he disclosed.
The EPF CEO added that education and awareness on these matters are important for members.
“We want our members to understand that the money is theirs and they have the right to withdraw the money through our withdrawal scheme, whether through the housing withdrawal scheme or medical.
“They can come to our branch for free and manage it themselves. There is no need to use the services of these ‘agents’,” he stressed.
Meanwhile, Shahril said the Malaysian combined EPF contribution rate is within the top five of the global contributions rate.
“It is not so much the contributions rate that is the problem. The problem is that for a very long time we have basically a low level of wages and income in Malaysia,” he said.
“That is something which I think both the EPF and, of course, the government are very aware of. That is why the government introduced the minimum wage policy,” he said.
“We should actually focus on a better wage level linked to productivity in Malaysia,” added Shahril.
Overview of the EPF
The EPF is a social security institution formed according to the Laws of Malaysia, Employees Provident Fund Act 1991 (Act 452) which provides retirement benefits for members through management of their savings in an efficient and reliable manner. The EPF also provides a convenient framework for employers to meet their statutory and moral obligations to their employees.
Who Are Our Members?
Private and Non-Pensionable Public Sector employees. The EPF, as at September 2016 , has a total of 14.72 million members. The total number of active and contributing members is 6.83 million. The total number of active employers is 541,503.
A contribution constitutes the amount of money credited to members’ individual accounts in the EPF. The amount is calculated based on the monthly wages of an employee. Current contribution rate is in accordance with wage/salary received.
For employees who receive wages/salary of RM5,000 and below, the portion of employee’s contribution is 11 per cent of their monthly salary while the employer contributes 13 per cent.
For employees who receive wages/salary exceeding RM5,000 the employee’s contribution of 11 per cent remains, while the employer’s contribution is 12 per cent.
Your monthly contributions are invested in a number of approved financial instruments to generate income. They include Malaysian Government Securities, Money Market Instruments, Loans & Bonds, Equity and Property.
The EPF ensures that your savings are secure and receive reasonable dividends. In fact, it guarantees a minimum of 2.5 Per Cent Dividend annually. To ensure dividend payments, the EPF invests your contribution in approved financial instruments for optimum returns.
Dividends are paid annually into your EPF account. The dividend rate declared by the EPF is subject to the returns from investments made in the approved instruments.
Annual Dividends, on the one hand, are calculated based on the opening balance of your savings as at 1 January of each year. Monthly Dividends credited into your account, on the other hand, are based on the monthly contributions received.
AKPK: Debt management aids retirement situation
Prior to retirement, it is of course, advisable to ensure that all your debts have been resolved.
In a recent talk by the Credit Counselling and Debt Management Agency (AKPK) head of Sarawak region Marlene Margaret Nichol, prudent financial management was highlighted as the key towards managing your life well and ensuring quality of living especially during the golden years.
AKPK’s Debt Management Programme (DMP) does just that, by assisting financially distressed consumers to regain financial control – a service the agency is providing for free.
The agency does so by helping borrowers to work out budgets that will help them meet their loan obligations and living expenses, thereby minimising non-performing loans and foreclosure of houses.
Individual borrowers can seek AKPK’s assistance in rescheduling or restructuring their housing loans, hire purchase loans and personal loans or outstanding credit/charge card balance due to financial service providers under the purview of Bank Negara Malaysia.
Other services provided by AKPK include financial education whereby AKPK is open to giving talks to the public on ways to manage finances wisely.
“We have various modules targetted at different audiences,such as tertiary module for college students, entry level workforce module, modules for starting and raising a family,” Marlene said.
AKPK also provides pre-retirees with a planning module which complements the retirement advisory services by the EPF.
Meanwhile, AKPK also provides financial counselling whereby the agency provides advice on managing finances one-on-one.
“AKPK can advise and even liaise for enrolment in Debt Management Programme where we assist individuals to help pay back at lower interest ratres and lower interest payments,” Marlene added.
“They can lower that interest rate – depending on their income – and can convert that credit card loan into a more manageable term loan with a fixed monthly repayment.”
For long term loans such as housing loans, Marlene said that they can help propose to the respective banks to reschedule the individual’s loans. AKPK has collaborations with several banks to assist borrowers to assist their loans with lower interest rates.
All these services provided by AKPK are free of charge.
However, Marlene highlighted that those declared as bankrupt cannot enrol for the Debt Management Programme as a positive net disposable income is needed.
As such, it is advisable for those in need of financial restructing to take advantage of the DMP and not run the risk of falling into bankruptcy.
Marlene pointed out that the biggest cause of bankruptcy nationwide is actually from hire purchases. Lately, personal loans have also been a major cause of bankruptcy in the country.
A tip to better manage one’s finances, Marlene stressed the importance of making sure that not more than 40 per cent of your income should be for your monthly fixed commitments.