My comments are posted at the end of the article
Published: Monday January 19, 2009 MYT 4:43:00 PM
EPF conversion to pension not viable
KUALA LUMPUR: The proposal to convert the Employees Provident Fund (EPF) scheme to a monthly pension scheme for private sector employees is not viable as individual savings are too small.
Malaysian Trades Union Congress (MTUC) secretary general G. Rajasegaran said that on average, savings of the majority of the seven million private sector employees in the EPF upon retirement was less than RM50,000.
"Assuming the retiree lives for the next 20 years and if this savings was given to him in monthly installments instead of one lump sum, he would receive about RM214 monthly as pension," he told Bernama on Monday.
He said this amount was definitely insufficient for the retiree to sustain himself.
Rajasegaran was commenting on a statement by Human Resources Minister Datuk S. Subramaniam that the cabinet had given the green light to the ministry to study the possibility of converting the EPF scheme to a pension scheme for private sector employees.
Public sector employees in Malaysia are already enjoying a pension scheme, including free medical treatment at government hospitals for life.
Rajasegaran said the proposal was nothing new, as this was discussed between the MTUC and EPF Board more than 15 years ago and no viable solution had been found, so far.
Meanwhile, the Malaysian Employers Federation (MEF) suggested that to make it viable, the government should give the employees an option either to withdraw their savings in a lump sum or on a monthly instalment basis.
Its executive director, Shamsuddin Bardan, said savings in the EPF rightly belonged to the employees and they had a right to do what they wanted and the government could not decide for them. - Bernama
It looks like a brick wall here. If the savings are too small to be converted to a pension, does allowing the retirees to draw all the money at retirement help them? Assuming the figures given are correct, and the retirees use the savings for spending during retirement at a higher monthly rate of RM1000, the savings would be finished within 55 to 60 months. What would this retiree do for his expenditure for the rest of his life?
There may be some retirees who have RM200,000 to RM300,000 in their account at retirement. Would allowing these retirees withdraw the lump sum at their retirements help them?
Efforts must be made to increase the amount in their savings at retirement. One way is to increase the monthly contribtions from the current 11% for employees and 12% for employers. A more reasonable rate would be 15% for employees and 20% for employers. This may seem a big burden to both employees and employers but we have to make this choice if we want to plan so that the retirees have enough money at their retirements.
Next the retirement age for private sector employees will have to be raised to 60 or 65. In this way, there will be more years for the contributions to be made,thus accumulating to a higher amount and less years in which to spend the savings, resulting in a higher monthly pension.