“SOMETIMES our strength is our weakness”
The Employees Provident Fund (EPF) established in 1951, helps Malaysians save for their retirement in accordance with the Employees Provident Fund Act 1991.
From a modest membership of slightly above 500,000 in 1952, the EPF now maintains the accounts of more than 14 million members with total contributions reaching RM800 billion and total assets under management reaching closer to a trillion ringgit.
Some of the key findings on EPF by World Bank in year 2018 are good governance, the decision-making process is split into two separate entities (board and the investment panel), EPF maintains transparency by voluntarily disclosing its investment position and performance on a quarterly basis, instead of on an annual basis as required and a key strength of EPF is the professionalism and the skills of its employees.
Looking at the long history, volume and external review, I personally feel as my EPF contribution is part of my strength, confidence and hope for my retirement. However, lately EPF has been our weaknesses for some reason.
It is becoming a weakness because it’s being treated as an ATM machine and is being pulled into the political agenda. Recently, I realised that for any national problems, EPF withdrawal is the financial solution.
Now the question we need to ask, is EPF our strength or weakness? Is EPF becoming a problem or is it a solution provider?
With so much difference in opinions in the recent national economic condition, let’s discuss why we should continue to contribute to EPF, stop depleting our golden nest with our weakness and start planning for our sustainable retirement.
The EPF announced that the members’ basic savings threshold (RM240,000 at age 55) recorded a drop from 36 per cent to 27 per cent as a result of the Covid-19 related withdrawals to supplement their income during the crisis. Looking at the present situation, the contributors will not be able to retire at the age of 60. — Photo by Mohd Rais Sanusi
Shortage of retirement fund
The EPF announced that the members’ basic savings threshold (RM240,000 at age 55) recorded a drop from 36 per cent to 27 per cent as a result of the Covid-19 related withdrawals to supplement their income during the crisis. Looking at the present situation, the contributors will not be able to retire at the age of 60.
Most of them will have to work until they are alive. Malaysia is expected to be one of the highest ageing population countries by 2030 and given the state of the EPF savings our contributors have today, we will likely see more poor retired individuals.
By allowing more withdrawal schemes, EPF is becoming our weakness rather than our strength.
Retirement is impossible
If you don’t have sufficient retirement fund, the other option is to work till you can and this is possible only if your health condition allows it.
Money problems are a major source of stress, financial stress is linked to physical conditions such as diabetes, heart disease, migraine headaches, and poor sleep.
Not only that, but money worries can also cause anxiety and depression, robbing you of peace of mind to enjoy your life today. If you can leave work before your expected retirement age, you’ll be in a much better position to not continue working and enjoy your retirement life.
Changing your lifestyle
With a limited retirement fund, it’s difficult to maintain the same lifestyle. Many people are reluctant to cut expenses, as they simply believe it’s too hard.
As we become used to living in a certain way, the idea of making changes that may force us to cut back on things that we consider completely normal and essential to our lives is incomprehensible to a lot of us.
Downsizing your home or relocating to a cheaper city involves a lot of emotional commitment.
Depending on children
Without a decent retirement fund, we might be a financial burden to our children. No parents want to rely on their children for things they’ve always done themselves.
Children who are not only taking care of their young kids but also of their ageing parents are said to be the ones belonging to the sandwich generation.
The sandwich generation thus have the added financial stress of taking care of both their parents and their children.
By planning and preserving our EPF contributions, we can help avoid this fate, so that we and our children can truly enjoy each other in the later years.
EPF is the most inexpensive method to create a professionally managed and diversified portfolio. Earning money in the markets is tough, something you need to monitor regularly (Full-time job).
Do you have the time to do that? If you want to create an investment portfolio on your own, you will have to choose from more than 1,000 mutual funds and 900 listed stocks, not to mention corporate and government bonds.
With total accumulated contributions plus dividends (guaranteed at 2.5 per cent per year) and an average 5.8 per cent annualised return for the past 10 years, EPF can be our financial strength at our later years.
Gunaseelan Kannan, CFP, a financial adviser representative by Bank Negara Malaysia and a Licensed Financial Planner by Securities Commission (CMSRL/B4198/2013), is currently pursuing his Doctorate research on entrepreneurship, financial planning and financial technology. He also lectures on accounting, finance and business fields in Asia Pacific University of Technology and Innovation (APU). He is the Winner of Malaysian Financial Planner of the Year 2020, from Financial Planning Association of Malaysia. He can be reached at [email protected].