Sunday January 20, 2013
For some, a new chapter begins
By NANCY NAIS
For private sector employees who turn 55 this year, their birth dates will determine whether they head for retirement or opt to work until they are 60.
TEACHER-turned-education editor Muhd Yusoff Abu Bakar is ready to call it a day when he turns 55 this May. Yusoff, who has been working for over 30 years, says he started planning for his retirement five years ago.
It is a major phase in life, like marriage, starting a family or buying a home, he explains.
“Although some companies offer their staff an extension in service, we cannot take for granted that our employers will automatically retain us,” he says.
Yusoff still has children in college but he is confident that he has enough saved for their studies as well as for his own needs once he stops working full-time.
Yusoff intends to use his free time to pursue his own interests and believes those hoping for work extensions are usually people who are not quite prepared for retirement.
“They may still have children in school or other commitments such as housing loan or other bank loans to pay off. So you cannot blame them for wanting to continue working,” he says.
Like Yusoff, Annie Ng is also looking forward to the day when she can finally clock out of work for good.
“I can't wait for March 26. I can finally take a long break. I have many plans, so retiring does not affect me negatively,” says Ng who teaches English at an international school.
Other than her EPF savings, Ng will also get a monthly income from renting out an apartment.
“I believe I have sufficient funds to keep me going,” says Ng, whose two children are already grown up. One, a daughter, lives in Australia and the other, a son, works in Cairo.
“My daughter and her family live in Melbourne and I plan to visit and stay there for a few months, She is more than happy to have me because I can help look after my nine-month-old grandson,” she says.
She started talking about retiring three years ago with her family, friends and employer, Ng says. “I made sure they knew I was considering giving up full-time work.”
Yusoff and Ng are among some 98,000 Malaysians who turn 55 between January and June this year who will retire from their jobs in the private sector unless they are offered an extension on a contract basis.
Another 98,000 private sector employees who turn 55 between July 1 and Dec 31 this year will get an automatic extension of five years with the implementation of the new Minimum Retirement Age Act 2012.
The Act stipulates that the new minimum retirement age for the private sector is 60 and employers cannot force an employee to retire before that age.
However, it does not prevent an employee from retiring upon attaining the age of optional retirement (55 years) according to their contract of service or collective agreement.
The Act was passed by Parliament on July 17 and gazetted on Aug 16 last year.
Malaysian Employers Federation (MEF) executive director Shamsuddin Bardan says the MEF is in favour of the new policy, believing that many workers are still in their prime at 55 and their services will be much needed for national development.
There are 6.5 million employees in the country's formal private sector, three million more in the informal sector and another two million foreign workers.
On average, 3% (195,000) out of 6.5 million employees retire yearly, making it close to 98,000 workers every six months.
One point that constantly arises is the loss of human capital if people retire at 55. Shamsuddin cites as examples judges and teachers whose experiences are crucial to society.
“Everybody can work but how younger people solve a problem compared with the older generation is different,” he says, adding that those who continue to work need not necessarily be employed in the same position as their roles in the organisation could be changed.
“They can be turned into mentors and trainers and be a model for the younger generation. That would be better than waiting for them to retire and then looking for new workers. It is also their obligation to transfer knowledge to younger workers so there is continuity.”
Another positive result from increasing the retirement age is that it will help reduce over-reliance on foreign workers who currently remit about RM22bil a year to their own countries.
“If we can retain that amount internally, it would spur the economy further. So the new policy is expected to bring down Malaysia's over-dependence on foreign workers,” he stresses.
But there are two sides to the coin. Shamsuddin points out that some employers may not be keen to extend the retirement age as they will be saddled with higher wage and medical costs.
Older workers usually draw a higher salary, so wage costs are also going to increase. There is also the possibility that their health, performance and productivity will decline with age.
If the employee in question is not productive, then an organisation would be saddled with wage bills without returns on the investment.
Shamsuddin suggests that the Government look at developed and neighbouring countries and consider a five-year interim period for the transition of retirement age from 55 to 60 years.
He says the grace period could reduce the burden on both employers and employees.
“The transition period may not be easy but what we are pushing for is basically to give a window of five years.”
Meanwhile, extending the retirement age does not necessarily mean depriving the younger generation of higher posts. There are many opportunities out there, and it is better to look for those rather than wait for people to retire, Shamsuddin says.
Surviving on savings
EPF public relations general manager Nik Affendi Jaafar assures that although the minimum retirement age has been extended to 60 years, private sector workers can still withdraw their full EPF savings at age 55.
“Those who don't take out their savings at 55 can make the full withdrawal at 60,” he says.
Under the amendment, EPF will also compel those who work until the age of 60 to continue to contribute to their EPF savings throughout their term of employment.
Currently, most private sector employees tend to rely solely on their EPF savings when they retire, and often these funds are insufficient.
So retiring at 60 would allow them to add to their savings, given that an individual can live for about 20 years after retiring, Nik Affendi points out.
According to a study done by the EPF, most Malaysians prefer to retire later than 55 years old so that they can have more savings.
Going by the amount that most people have at the time of retirement, Malaysians generally don't save enough.
According to the EPF's annual report for 2011, some 62,000 active contributors who reached 55 years of age have an average of RM149,000 in their savings. Another 146,000 inactive contributors only have RM23,000 in savings when they turn 55.
The report also shows that 58,031 active contributors have more than RM300,000 in their savings while 11,174 active contributors have at least RM1mil.
According to Shamsuddin, retirees use up an average of RM150,000 of their EPF savings in the first three to five years of retirement.
“That's a concern. For example, if you have about RM150,000 and live up to 70, can you sustain yourself? If we continue to contribute for another five years, on average it will be an additional RM20,000. It's not much but at least there is something extra,” he says.
Federation of Malaysian Consumer Associations (Fomca) CEO Datuk Paul Selva Raj agrees that retirees cannot rely on their EPF savings alone.
He advises the younger generation to budget and save a specific amount every month for their retirement.
Giving an example, he says that if a retiree spends RM1,500 a month, he will need at least RM360,000 in his EPF savings to last another 20 years.
“Life expectancy is about 75 years, so retirees need enough savings to last till then. If you look at the average retiree's EPF savings, it is not enough.
“We also know that 50% of those who withdraw their entire EPF savings finish their money in five years, which is very alarming,” Paul says.
So how soon should Malaysians start planning for their retirement?
Paul says the earlier the better. It also means less worry by the time they hit the big day.