Working on retirement | The Star

WITH people having low savings in this country, raising the retirement age seems like a reasonable solution. The longer people work, the more they can save for their retirement.

Then, there are other benefits, such as employer-paid medical coverage for themselves and even their families. Public sector workers and their families are entitled to medical coverage even after they retire.

But it’s easier said than done. The economy has some structural issues that the government is just beginning to get a handle on.

Low wages are the most critical of all the issues, looking at just the financial aspect of retirement. EPF savings are low for most Malaysians, with some two-thirds of fund members below the age of 55 not having attained the RM240,000 minimum recommended by the EPF.

Data from the provident fund showed that three-quarters of those who withdraw all their funds finish them within five years.

Having more people gainfully employed may be good for the economy but do workers actually benefit from postponing retirement?

Not very much, says Prof Geoffrey Williams, an economist and policy specialist who has been working and living in Malaysia for more than two decades.

“The best economic approach is to look for alternatives to working longer and paying more, and there are two main ideas on the table in the Malaysian context,” he says.

One idea is to finance pensions from a source that does not deduct salaries of low wage earners. This can be done with a “superfund” combining existing government-linked investment companies’ assets.

This superfund would continue to invest in development finance programmes but the returns on the fund would be ring-fenced to pay a universal basic pension that do not have to rely on contributions from low-income earners.

The other idea is to finance pensions from a ring-fenced tax as even 0.5% from an e-payments tax (EPT) would raise enough to pay a monthly RM500 to everyone over 65. An EPT of 0.8% would fund the same for everyone over 60.

Williams says working to a later age is not a practical solution in Malaysia due to the low wage structure and low labour participation rate.

A 50-year-old with no savings and a median monthly income of RM2,900 would have to save RM2,000 per month, which is equivalent to 70% of their wage to get to EPF’s minimum retirement savings by 60. Those aged 50 and on minimum wage would have to save more than they actually earn to get to the EPF’s minimum threshold.

The problem is compounded by the fact that more than 40% of adults are effectively in the “outside labour force” category, either because of household/family responsibilities or schooling/training, according to the Statistics Department’s March update of the labour force.

Household work is generally unpaid and the i-Sayang programme in which breadwinners can contribute 2% of their portion of EPF contribution to their spouses’ EPF retirement savings is inadequate, even assuming that the breadwinner shoulders a larger portion of the financial responsibility in retirement.

Centre for Market Education CEO Dr Carmelo Ferlito also disagrees on having a retirement age, saying it should be a personal decision on the part of the worker based on financial needs.

“Each business makes its own evaluation and can understand if an older employee is still an asset with valuable experience or if they prefer to hire younger workers. Therefore, I believe it depends very much on the business and the worker,” he says.

“Here is where the big issue is for Malaysia, so many people having so little,” he says. About 90% of businesses in Malaysia comprise microbusinesses and SMEs, employing almost half of the labour force.

Microbusinesses make up almost four-fifths of that total, making it impossible to address concerns on social mobility and social protection.

According to Ferlito, a degree of consolidation for economies of scale is needed, bringing with it innovation, increased productivity and better jobs.

There is a lot of public discourse now on raising the retirement age and there is certainly more awareness on issues such as social protection and the silver economy catering to an ageing society, which Malaysia transitioned into from 2020 according to World Bank measurements.

Socio-Economic Research Centre executive director Lee Heng Guie says the social security safety net needs to be strengthened throughout the career of employees for them to enjoy decent pensions and a dignified retirement.

Inevitably, the combination of longer lifespans and inadequate retirement savings will mean the government will have to ramp up awareness programmes to encourage workers in the informal sector to contribute to EPF and Socso. According to the Statistics Department, almost a fifth of workers are now working on their own.

“Social safety programmes must work together towards the idea of raising the retirement age gradually. This includes the proposal to have new entrants into the civil service be placed on a contribution scheme like the EPF instead of the public pension scheme,” Lee says.

This article first appeared in Star Biz7 weekly edition.