PRIOR to the Covid-19 special withdrawal schemes, about 3.3 million or 22% of Employees Provident Fund (EPF) members were able to meet the basic savings target.
Following the withdrawal schemes, this number had dropped to 2.3 million or 14.9% of all EPF members, as at July 2022.
As of the same period, about half or 51.7% of the total 12.78 million EPF members aged below 55 years old have minimal retirement savings of less than RM10,000.
Individuals who needed to withdraw from the special schemes are those with the least amount of savings, said the EPF.
Those approaching retirement age may not be able to accumulate adequate savings for retirement during their remaining working years.
So should the retirement age be further extended?
About RM145bil had been withdrawn from the four Covid-19 special schemes – i-Lestari, i-Sinar, i-Citra and the one-off withdrawal of RM10,000.
Basic savings refer to the amount that is considered sufficient to support members’ basic needs for 20 years upon retirement.
It is benchmarked against the minimum pension for public sector employees, which is RM1,000 per month.
This rate of RM1,000 can only cover basic needs and is lower than the estimated minimum monthly expenses of RM2,500 required for a senior citizen to lead a reasonable standard of living, as recommended in the Belanjawanku Guide.
This translates into an adequate savings target of about RM600,000 to last for 20 years of retirement, said the EPF.
As of July 2022, only about 15.6% of active members in the 25 to 29 age category are able to meet basic savings; 30 to 34 (34.4%), 35 to 39 (43.6%), 40 to 44 (44.9%), 45 to 49 (41.4%) and 50-plus (33.2%).
Overall, only 28.3% of active members are able to meet basic savings over the same period.
In its focus on financial literacy, the EPF will highlight, among other things:
> My Money Matters as a basic guide to financial planning which helps members to be aware of their financial position throughout their life cycles.
They need to organise, among other things, their savings goals on a short to long term basis, how to plan their expenditure and investments while assessing the value of their assets and keeping aside money for retirement.
> The Belanjawan Guide which provides the recommended minimum level of monthly expenses for households in Malaysia.
It is comprehensive; in recommending the appropriate budget, it takes into account the household composition, the city of residence and the person’s commitments.
> Retirement advisory services on a one-to-one basis which are given free of charge by certified officers to help members plan their retirement finances as well as in their personal financial planning.
To encourage higher savings, salaried employees who are currently EPF members can voluntarily contribute at a rate that is higher than the statutory rate.
Those not under formal employment, and are thus not under the mandatory coverage of the EPF, can choose to contribute to one of the EPF’s voluntary savings programmes – i-Saraan and Kasih Suri Keluarga Malaysia.
Under self-contribution, Malaysians are allowed to top up their EPF savings with any amount, at any time, up to a maximum of RM60,000 per annum.
They can also top up the EPF savings of their loved ones under Topper Toppee.
Malaysians should understand the importance of saving and start saving early to take advantage of compound interest.
Starters are advised to start small if they have to, and then try to increase the amount of savings each month.
Plan ahead and know your savings and retirement needs; about two thirds of your pre-retirement income is required to maintain your standard of living when you stop working, said the EPF.
Use the EPF basic savings to keep track of your EPF savings according to age, or refer to the Belanjawanku Guide for estimates on how much savings you should put aside monthly and how much you would need as a senior citizen.
Basic savings is a pre-determined amount set according to age in Account 1 to enable members achieve a minimum savings of RM240,000 when they reach 55.
Malaysians should know what our financial goals are, the budget that we have, the expenses that we can maintain and the debts we currently owe, said the EPF.
We need to keep track of our budget and expenses for a detailed and up-to-date description of our financial situation.
We should be able to make well-informed financial decisions throughout our lives and understand the possible impact of such decisions. We should also be in control of our finances, have the opportunity to improve our overall well-being, and be able to adjust our finances during unexpected events.
A comprehensive plan should be in place to ensure sufficient savings that can support our financial needs during retirement years.
Impulsive buying, over-spending, over-borrowing and insufficient savings buffers are some negative habits and practices to be avoided.
Against rising inflation, many people are struggling with more than one job to not just make ends meet but also to gradually put aside some savings.
Those who are not so well-organised or tend to over-spend will need all this advice on financial literacy; for some unfortunate ones, it will be a slow climb to achieve even a bit of savings.
Those who are doing well may help by providing more jobs; we may consider further extending the retirement age especially for those who are heading towards retirement and have already impoverished their savings.
Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.
