November 2021 Vol 1 No 2

Your editor, Jamari Mohtar, is at a mamak restaurant, somewhere in Damansara Height, KL ...

  • It was 4pm and your editor, after running some errands for the family, decided to buy food for the family’s dinner when he chanced upon a former office colleague at the restaurant, who coincidentally was also buying dinner for his family.
  • Being aware of the pandemic, we each initially decided to stand some distance away from the workers who were preparing to take our orders without realising the presence of each other, perhaps because with our masks on like a modern Zorro, we didn’t notice each other at first.
  • Then our eyes met and we were somewhat surprise to see each other, as we had not been in contact for the past five years since leaving our jobs.
  • As the small talks to catch up with things took more than five minutes, we decided to have what the Malay lingo here said “mengeteh” (having tea).
  • After all, we had to wait for our orders to be readied, and also we had been doubly jabbed, and therefore can dine-in, although we actually “dine-out” by choosing a table outside the restaurant, in line with the advice of former Prime Minister, Tan Sri Muhyiddin Yassin to choose an open space of a restaurant when dining-in, when he first relaxed the standard operating procedure in allowing dining-in for the fully vaccinated.
  • And it also dawned on me that this was my first dining-in after so many months of the Movement Control Order (MCO) though I had been buying food on a “tapau” (takeaway) basis many times.
  • Our banter soon touched on the issue of the dwindling Employee Provident Fund (EPF) balance for the majority of Malaysians especially for the vulnerable B40 group, many of whom now has less than RM1,000 in their EPF account.
  • “Ini semua salah Najib …” said Fazarul, my ex-colleague. He is blaming Najib for pressuring the Government to allow the withdrawal of EPF monies before retirement age when the raison d’etre for EPF is saving for retirement, which means no withdrawal until the partial withdrawal age of 50 and full withdrawal at 55 onwards.
  • “How can a convict be so influential in policy making,” ruminated Fazarul before adding, “This is after all Malaysia. Malaysia Boleh!!!”
  • “So, you are agreeing with Tun Dr Mahathir Mohamad that a convict who had successfully obtained a stay of execution from the court pending his appeal, is deemed guilty and should stay in jail until he proves his innocence?” I asked. “Isn’t that tantamount to contempt of court?” I continued asking.
  • “I’m not supporting any politicians here. As far as I am concerned, they are the root cause of all the big problems our country is facing,” was the response.
  • In a  statement on Oct 31, EPF said RM101 billion has been disbursed to over 7.4 million members – about half its total members – to cope with the pandemic, following the introduction of the special withdrawal facilities of i-Lestari, i-Sinar and i-Citra.
  • The three exceptional withdrawals have left 73% or nearly three quarters of members in a serious state of having inadequate funds to retire above the poverty line.
  • It also estimates that members will need to work an extra four to six years to rebuild savings that have been used during the pandemic, which has also led to a significant drop in the percentage of members meeting the Basic Savings threshold of RM240,000 at age 55 – from 36% in 2020 to an estimated 27% by the end of this year.
  • The statement added, while the withdrawals provided some financial relief to members during the pandemic and various MCOs, these have inevitably led to 6.1 million members now having less than RM10,000 in their EPF accounts, of which 3.6 million have less than RM1,000, leaving them vulnerable and unprotected for their retirement.
  • In light of all these developments, the EPF is calling for “future exceptional withdrawals will need to be very carefully considered”.
  • “I think it was the right thing to do early on during the pandemic when the government allowed the withdrawal of EPF monies up to RM600 monthly for six months,” said my good friend Fazarul.
  • “Once the six months period is over, and there is still a need to allow withdrawal, the government can extend the scheme for another final six months with the amount increased up to RM800 monthly,” continued Fazarul.
  • Then what we have will be an unprecedented time period of one year of withdrawal from April 2000 to March 2021, and assuming 7.4 million members withdrew the full amount each month, a maximum total of only RM62.2 billion [(600×6) + (800×6) x 7.4 million] of EPF monies would have been disbursed instead of RM101 billion now when the lump sum withdrawal of at least RM 10,000 for each member was allowed through the three withdrawal facilities.
  • I summarised it for my friend by saying that under the Muhyiddin’s scheme where up to RM600 can be withdrawn monthly for six months only, the maximum total withdrawn would be RM26.6 billion (still assuming 7.4 million members choose to withdraw), while under the Najib’s scheme where a lump sum total of at least RM10,000 can be withdrawn, a maximum total of RM101 billion was withdrawn. Meanwhile under the Fazarul’s scheme, a total of RM62.2 billion would be withdrawn.
  • In term of EPF balance for retirement, Muhyiddin’s scheme was the best while Najib’s scheme was the worst. But in term of alleviating the suffering of the rakyat during the pandemic, Najib’s scheme was the best!
  • But my friend was quick with a rejoinder: “Has the rakyats’ suffering really been alleviated with RM101 billion gone from their retirement fund? The suffering is still there! And this suffering can be mitigated through other means and not the EPF, as it is meant for retirement.
  • “If my scheme was adopted, only RM62.2 billion will be wiped out from the retirement fund. Still a lot of monies but at least it is lower than the RM101 billion withdrawn now.”
  • And to buttress his argument, Fazarul quoted an independent MP, Datuk Dr Xavier Jayakumar, who said in Parliament while debating the 2022 Supply Bill … and if they resign or retire, they will not have any savings. These people will then fall below the poverty line and we will have a much bigger issue as far as socioeconomic problems are concerned in urban and rural areas.”
For more on a depleting EPF balance:

Social security - access to a minimum standard of living during retirement

  • But all is not lost when Budget 2022 shows the government is reaching out to the vulnerable group with various schemes such as an allocation of RM8.2 billion for Bantuan Keluarga Malaysia (BKM) and RM4.8 billion for Inisiatif Jamin Kerja Keluarga Malaysia (JaminKerja), as well as a number of measures to assist the rakyat, exemplifying the Government’s strong stance in strengthening the social protection agenda for Malaysians. 
  • The continuation of i-Saraan and Kasih Suri Keluarga Malaysia incentives go some way towards addressing the shortcomings of the country’s social protection system for the vulnerable members of society, to ensure that they have access to at least a minimum standard of living, even during unprecedented times.
  • The social protection agenda is being overseen by the Malaysian Social Protection Council (MySPC), chaired by the Prime Minister, and is currently looking at fundamental reforms to the nation’s social protection system. 
  • But what is sorely needed is not so much social protection but social security as Malaysia is transiting to a developed, high-income country.
  • Social protection is defined as the set of policies and programmes designed to reduce poverty and vulnerability by promoting efficient labour markets, diminishing people’s exposure to risks, and enhancing their capacity to protect themselves against hazards and interruption/loss of income.
  • It consists of five major elements – labour markets, social insurance, social assistance, micro and area-based schemes to protect communities and child protection. 
  • When implemented properly, these policies and programmes can make a major contribution to the overarching goal of reducing poverty.
  • Social protection, as an integral part of social development, aims to assist individuals to break the cycle of poverty and enhance the quality of growth by investing in human capital, increasing productivity, and reducing rakyat’s vulnerability to risks. 
  • The Government, to its credit, has extensively taken into account the social protection agenda in Budget 2022 and the 12th Malaysia Plan (2021-2025), the latter being aligned with the shared prosperity initiative encompassing the three dimensions of economic empowerment, environmental sustainability and social re-engineering.
  • On the other hand, the term “social security” is generally used to refer to the comprehensive mechanisms and coverage in high-income countries, and is less applicable to new areas such as community and area-based schemes.
  • Ensuring the rakyat has access to a minimum standard of living to face life during retirement amid the country approaching an ageing population where a relatively lesser number of employable rakyat is supporting an increasing number of retirees, is what social security is all about.
  • And this is where the dwindling EPF balance of many Malaysians becomes a grave concern. In this regard, Malaysia doesn’t have to reinvent the wheel judging by the many fanciful and creative ideas put forth by many parties, which will only complicate implementation.
  • This is because of the failure to distinguish between social protection and social security. 
  • The latest report of the Global Pension Index 2021 of the Mercer CFA Institute which ranks the best countries for pensions and retirements puts Malaysia in the 23rd position out of 43 countries, in which Iceland is in the first position with an index score of 84.2 while Thailand is in the last position with a score of 40.6.
  • Malaysia scores 59.6 – a slight drop from 60.1 in 2020 – which means our pension and retirement scheme is better than Spain (24th position with a score of 58.6), China (28th, 55.1), Italy (32nd, 53.4), Austria (33rd, 53.0), Japan (36th, 49.8) and South Korea (38th, 48.3).
  • In the Asean countries, Singapore was ranked the highest (10th position, 70.7) with Malaysia in second place. Not bad really for Malaysia! And this is despite the pandemic.
  • Of course there will be people who would pooh-pooh the ranking as if it is a study done by some pro-Malaysia experts to make Malaysia looks good.
  • The fact is this is a scientific study where what makes a country tops the list is the weighted average given to three sub-indices – the adequacy sub-index, the sustainability sub-index and the integrity sub-index.
  • The adequacy sub-index, which represents 40% of a country’s overall index value, looks at how a country’s pension system benefits the poor and a range of income earners. It also looks at the system’s efficacy, and the country’s household savings rate and rate of homeownership.
  • The sustainability sub-index (35%) considers factors that can affect how sustainable a country’s retirement fund system is by looking at the level of coverage of private pension plans, government debt, and economic growth.
  • The integrity sub-index (25%) explores the communication, costs, governance, regulation, and protection of pension plans within that country, and considers the quality of the country’s private sector pensions because, without them, the government becomes the only pension provider.
For more on Budget 2022, 12th Malaysia Plan and Mercer CFA Institute Global Pension Index 2021:

Best practices of retirement funds

  • Seeing that Singapore tops the list in the Asean countries, it would be good to incorporate some elements of the republic’s retirement scheme, the Central Provident Fund (CPF), into our EPF system.
  • Unlike pension systems in other countries, the CPF goes beyond providing members with an income in retirement. It also helps its citizens to save for housing and healthcare – a 3-in-1 system.
  • CPF members earn government-guaranteed interest of up to 6% per annum on their savings. In comparison, other defined-contribution pensions systems require members to take on some investment risks to grow their savings.
  • CPF is sustainable, as payouts depend on the savings set aside by each member. Unlike many other pension systems funded by taxpayers, given the rapidly ageing populations and the challenges in reducing pension benefits or deferring pension payout ages, these systems run the risk of default or insolvency.
  • To help provide for basic retirement expenses, CPF members can set aside the Basic Retirement Sum (BRS), which takes reference from the actual spending of retiree households. And to get higher CPF payouts, citizens can either top up their CPF, or defer the starting point of their retirement payouts.
  • Aside from individual contribution of 20% of their salary to CPF, this individual effort is supplemented by contributions from employers, loved ones and the Government.
  • With the demise of a member, any unused CPF monies are distributed to nominees and/or loved ones, whereas most tax-funded pension systems stop payments upon members’ death, so not all of a member’s contributions will be paid out to them or their loved ones.
  • A member with a Full Retirement Sum (FRS), currently at S$186,000 at age 55 can expect to get a payout of about S$1,430 – 1,530 monthly, from age 65 onwards.
  • Those that have less – the BRS, which is half the FRS, at S$93,000 – at age 55, can expect to receive a payout of about S$ 770 – 830 monthly.
  • The beauty about this is even if a member does not have the BRS amount at age 55, he has a 10-year working life to top up his retirement account until it reaches the BRS or FRS amount by 65 to enjoy a higher payout during retirement.
  • Even if the FRS amount is reached at age 55, the 10-year working life will afford a member to top up the FRS amount so as to be at least the prevailing FRS amount so as to get a higher payout.
  • The quantum of FRS, and therefore BRS too, is increased every three years or so to take into account the inflation rate. 
  • For Malaysia to implement this, it can play around with the Basic Savings threshold of RM 240,000 at 50 instead of 55, and then introduce a Final Saving threshold that doubles the basic threshold, as a basis for a lifetime of monthly payout beginning at age 60.
  • Members who have less than the Basic Savings threshold at 50 have the opportunity to top up their retirement account to the Basic Savings level or the Final Savings level by 60, as they have a 10-year working life after 50.
For more on CPF & EPF schemes:
  • As the Melaka state election gets underway, the Opposition coalition Pakatan Harapan is grappling with the issue of whether to get leap frogging politicians to contest under its banner.
  • Even at the grassroots level, coalition members are torn between a rock and a hard place on the issue. 
  • Put it anyway you like, it is a case of accepting leap froggers or rejecting them, a case of adopting an easy winning strategy over adopting the difficult strategy of uncertainty for victory, and finally, a case of expediency versus sticking to principle.
  • Who says politics is an easy game of capturing power at all cost?
    It can be so scary thinking of what will happen to our young working children when currently RM101 billion of EPF monies have been disbursed to over 7.4 million members to cope with the pandemic, leaving 73% or nearly three quarters of them in a serious state of having inadequate funds to retire above the poverty line.
    While the withdrawals provided some financial relief to members during the pandemic and various Movement Control Orders, it has inevitably led to 6.1 million members now having less than RM10,000 in their EPF accounts, of which 3.6 million have less than RM1,000, leaving them vulnerable and unprotected for their retirement.
    What’s more, there is also a significant drop in the percentage of members meeting the Basic Savings threshold of RM 240,000 at age 55 from 36% in 2020 to an estimated 27% by the end of this year.
    This has led to calls for the government to beef up the country’s social protection comprehensively for the rakyat and cynical voices for the EPF to be revamped.
    The social protection agenda is being overseen by the Malaysian Social Protection Council (MySPC), chaired by the Prime Minister, and is currently looking at fundamental reforms to the nation’s social protection system.
    But what is sorely needed is not so much social protection but social security as Malaysia is transiting to a developed, high-income country.
    Social protection is defined as the set of policies and programmes designed to reduce poverty and vulnerability by promoting efficient labour markets, diminishing people’s exposure to risks, and enhancing their capacity to protect themselves against hazards and interruption/loss of income.
    It consists of five major elements – labour markets, social insurance, social assistance, micro and area-based schemes to protect communities and child protection.
    Social protection, as an integral part of social development, aims to assist individuals to break the cycle of poverty and enhance the quality of growth by investing in human capital, increasing productivity, and reducing the rakyat’s vulnerability to risks – making a major contribution to the overarching goal of reducing poverty.
    Critics are barking at the wrong tree, as the Government to its credit, has already extensively taken into account the social protection agenda in Budget 2022 and the 12th Malaysia Plan (2021-2025), the latter being aligned with the shared prosperity initiative encompassing the three dimensions of economic empowerment, environmental sustainability and social re-engineering.
    On the other hand, “social security” refers to the comprehensive mechanisms and coverage in high-income countries, and is less applicable to new areas such as community and area-based schemes.
    Ensuring the rakyat has access to a minimum standard of living to face life during retirement amid the country approaching an aged population where a relatively lesser number of employable rakyat are supporting an increasing number of retirees, is what social security is all about.
    And this is where the dwindling EPF balance of many Malaysians becomes a grave concern.
    In this regard, Malaysia doesn’t have to reinvent the wheel judging by the many fanciful and creative ideas put forth by many parties, which will only complicate implementation.
    The latest report of the Global Pension Index 2021 of the Mercer CFA Institute, which ranks the best countries for pensions and retirements, puts Malaysia in the 23rd position out of 43 countries, in which Iceland is in the first position with an index score of 84.2 while Thailand is in the last position with a score of 40.6.
    Malaysia scores 59.6 – a slight drop from 60.1 in 2020 – which means our pension and retirement scheme is better than Spain (24th position with a score of 58.6), China (28th, 55.1), Italy (32nd, 53.4), Austria (33rd, 53.0), Japan (36th, 49.8) and South Korea (38th, 48.3).
    In the Asean countries, Singapore was ranked the highest (10th position, 70.7) with Malaysia in second place. Not bad really for Malaysia! And this is despite the pandemic.
    Of course there will be people who would pooh-pooh the ranking as if it is a study done by some pro-Malaysia experts to make Malaysia looks good.
    The fact is this is a scientific study where what makes a country tops the list is the weighted average given to three sub-indices – the adequacy sub-index, the sustainability sub-index and the integrity sub-index.
    The adequacy sub-index, which represents 40% of a country’s overall index value, looks at how a country’s pension system benefits the poor and a range of income earners. It also looks at the system’s efficacy, and the country’s household savings rate and rate of homeownership.
    The sustainability sub-index (35%) considers factors that can affect how sustainable a country’s retirement fund system by looking at the level of coverage of private pension plans, government debt, and economic growth.
    The integrity sub-index (25%) explores the communication, costs, governance, regulation, and protection of pension plans within that country, and considers the quality of the country’s private sector pensions because, without them, the government becomes the only pension provider.
    It would be good for these sub-indices to be the driving force for our pension and retirement system to be continually among the best in global ranking.
    Also, we can incorporate elements of best practices among the top ranked countries particularly Singapore’s retirement scheme, the Central Provident Fund (CPF), into our EPF system.
    CPF members earn government-guaranteed interest of up to 6% per annum on their savings. In comparison, other defined-contribution pensions systems require members to take on some investment risks to grow their savings.
    It is sustainable, as payouts depend on the savings set aside by each member, unlike many other pension systems funded by taxpayers, which run the risk of default or insolvency, given the rapidly ageing populations and the challenges in reducing pension benefits or deferring pension payout ages.
    To help provide for basic retirement expenses, CPF members can set aside the Basic Retirement Sum (BRS), which takes reference from the actual spending of retiree households.
    And to get higher CPF payouts, citizens can either top up their CPF from age 55, or defer the starting point of their lifetime retirement payouts.
    Aside from individual contribution of 20% of their salary to CPF, this is further supplemented by contributions from employers, loved ones and the Government.
    For example, those below 55, for every dollar that they contribute to their Special Account (SA) of the CPF, their employer chips in another $S0.85, giving them S$1.85. This will double to S$3.70 in about 20 years, and $7.40 in about 40 years. This is seven times more than the $1 they contributed. This is computed using the base interest of 4% per annum on their SA.
    A member with a Full Retirement Sum (FRS), currently at S$186,000 at age 55 can expect to get a payout of about S$1,430 – 1,530 monthly, from age 65 onwards. Those that have less at 55 – the BRS, which is half the FRS amount, at S$93,000 – can expect to receive a payout of about S$770 – 830.
    The FRS increases in amount every three years or so to take into account the inflation rate.
    The beauty about this is even if a member does not have the BRS amount at 55, he has a 10-year working life to top up his retirement account until it reaches the BRS or FRS amount by 65 to enjoy a higher payout during retirement.
    Even if a member already has the FRS amount at 55, the 10-year working life will enable him to top up the FRS so that it equals to the prevailing FRS at 65, hence allowing a member to enjoy higher payout at 65 onwards.
    For Malaysia to implement this, it can play around with the Basic Savings threshold of RM240,000 at 50 which in concept is quite similar to BRS of the CPF system, and then introduce a Final Saving threshold which doubles the basic threshold, as a basis for a lifetime of higher monthly payout beginning 60.
    Also, instead of members earning dividends, this can be changed to earning a government-guaranteed interest of up to 6% per annum on their savings with the base interest for Account 1, which is meant for retirement to be no less than 4%.
    Finally, what’s needed is a solid social safety net where a member of the Keluarga Malaysia in financial difficulty would always receive financial assistance from other family members as a first resort, and failing this, community support and finally the Government as the last resort.
    This would enhance the resiliency of the poor so that withdrawal of EPF monies is not resorted to in times of difficulty because help is around the corner from this social safety net, until the age of 50 and 55 onwards, where withdrawal begins to face life during retirement.
    This idea of a social safety net is embedded in the CPF system when family members are encouraged to top up their kith and kin’s CPF and the Government topping up the SA and Medisave account of CPF members on a periodic basis, especially when the Government attained a budget surplus.
    Regards,
    Jamari Mohtar
    Editor, Let’s Talk!
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