Looking ahead

EPF advocates saving for the future

TECHNOLOGICAL advancements have changed our lives for the better, most people will agree.

But really, how much happier and better off are we as a result.

Also, is the younger generation of today enjoying higher standards of living and social security levels compared to that of their parents?

Experts opine that young people or millennials as they are known have it so much worse in these days of high inflation and escalating costs.

And it is the same in most parts of the world.

In Malaysia, one of the longest standing issues is the lack of household savings.

At a savings rate of 1.3%, Malaysians go down as some of the worst savers in Asia and are just not saving enough for a rainy day, let alone for their golden years.

One can blame it on low financial literacy or simply uncompetitive income levels but the fact remains that if Employees Provident Fund (EPF) savings are not taken into consideration, the figure of 1.3% falls into negative territory.

Moving forward, what can be done so that the days ahead can promise more security for all?

These and much more were discussed at the recent EPF-The Star Roundtable organised in conjunction with EPF’s International Social Security 2018 conference themed, “A Better Tomorrow” held earlier this month. 

Moderated by The Star’s assistant editor YVONNE TAN, the roundtable panellists comprised dean at the Lee Kuan Yew School of Public Policy, National University of Singapore professor Danny Quah, founding director of the Oxford Martin School, University of Oxford professor Ian Goldin, head of EPF Economics and Capital Markets department Nurhisham Hussein and futurist & senior associate at the Innovation Unit, London, David Price.

At the roundtable: (from left) StarBiz writer Ganeshwaran Kana, Nurhisham, Quah, Tan, Goldin and Price at the conference on A Better Tomorrow.
At the roundtable: The panellists discuss a range of issues from social security to global market risks and education. From left are StarBiz writer Ganeshwaran Kana, Nurhisham, Quah, Tan, Goldin and Price.    

Below is the transcript of the discussion:

How would you define social security?

Quah: The idea of social security here goes back to the New Economic Policy (NEP).

We must not forget that the NEP had two goals that were very much social security related.

One, to eradicate poverty across all the races and second, to remove the identification of economic functions with race.

Both of those were fine plans to take us forward.

If we think about how we want to view social security now, the urgencies come possibly from the view that there are strong forces in the world that are potentially making inequality even worse, and that are exacerbating fears of insecurity.

We have to deal with these new urgencies because Malaysia has been for decades, concerned with social security in the sense of a better life for all citizens, and not just for those in the top income bracket.

So perhaps I might say , before I answer your question, it is important to focus on the new forces.

The new forces are what most people would identify as globalisation and trade, as well as technological change in its disruptive manner.

Price: For me, from a Western perspective when we look at social security, what comes to mind is the “neglect of the young”.

If we look at the handouts that are given out right now, it’s pretty bad.

People like me, the baby boomers, we had the party and the young people are now having the hangover.

It seems to me that we got a system which relies on the millennials to keep us at a reasonable standard of living, but they are served disproportionately when it comes to things like unemployment, underemployment and the gig economy.

As a society, we have to discuss how are we going to support our people moving forward.

They will be the earners of the future and also the investors of the future.

For me, what is important is a strong sense of ethics that enables one to have more control over one’s life.

That has an impact over investments including self-managed investments. Young people (should) not invest in economies which they believe to not have the same moral and social purposes as they do.

It seems that we have given them a difficult start in life. We told them for years that you need to go to university, get a degree and then a job. That is no longer the case.


In talking about the neglect of the young, where have we gone wrong?

Price: I think there are too many countries that are not giving young people the kind of education that will prepare them for this vastly different world. And this is partly because politicians had an education that by large, worked for them.

Quah: Talking about the young, while it may seem to us that there is great insecurity in this kind of world (of freelance jobs and the gig economy), many young people are embracing such changes.

Those in the establishment must think about how we can respond to, and allow talents to flourish.

We want to build a platform for these young people, not a scaffolding that threatens them. Considering the growing interest in the gig economy, I would be hesitant to say whether the current trend is all bad or all good.

For some people, the gig economy is really good. Just find an internet connection and get your work done, you could probably earn more than an academic.

For the rest of the people in the gig economy such as the Grab and Uber drivers, for whom life is a lot harder, I think we need to take care of these people.

What are your thoughts on a retirement model?

Goldin: For me, the priority should be on coverage because there are still many people who are not covered. This includes the rural people, those in the informal sector and refugees. So coverage is a very big issue.

The second priority is the income people get in order for them to lead a decent life. The third is about the elderly, and I think that it is going to be a very big issue not only in Malaysia, but also around the world, with collapsing fertility and increasing longevity.

So preparing a protection system to look after the people is important.

The current social security system around the world is not adequate to support the growing population. The arithmetic just doesn’t add up. In fact, there are some suggestions that the next financial crisis will come from defined benefit arrangements because these may bankrupt companies.

At the same time, the contributions that individuals make are not going to pay for their retirement either because the returns are too low.

Quah: The idea to protect retirement and to establish a minimum age limit before benefits can be withdrawn came from an era when people were frail by the time they were 45 years.

At that time, many would have passed away before they turned 55. While the world has changed significantly now, we still hardly think about allowing people who have extensive knowledge to continue to work.

We should allow them to use their knowledge to work even after retirement.

I understand that there will be those who feel that they have spent their life working and will feel a sense of entitlement as they reach retirement age, wanting to live out their lives.

But there are also other people who feel that they are becoming ever more productive after retirement age. So, we have to find a way to free up our pension and retirement systems to become more accommodative.

Nurhisham: This whole idea of retirement started in a really industrial society.

With this knowledge economy, we are increasingly moving to pre-industrial forms of work where you are acting on your own and you provide service to multiple people.

That’s what the gig economy actually is. Now, the challenge for the social protection system is how do you cater to people like that. We really need to re-think this.

Price: People are still embracing retirement because work is still awful. So, let’s fix work. Let’s make work engaging, more fulfilling, more purposeful. More people actually don’t want to retire as they have more needs in life.

How has technology help improve things for everyone?

Quah: Many of us think of technology as the evil one as it disrupts our work.

But the flip side of it is, technology enhances productivity. With technology, we can decouple the idea of working from the idea of sustaining.

Goldin: Unfortunately, the idea of technology enhancing productivity remains a pipe dream.

Quah: Let me disagree with that.

Goldin: Since 2002, productivity in the advanced economy has actually stagnated and it is 2% lower than what it was in the last century. The productivity paradox, which I don’t know the answer to, is alive.

And there are 22 different explanations including measurements and concentration, not a single one of them I believe is credible.

Quah: Technology has been the most profitable sector in the world. Apple just reached US$1 trillion market cap.

It is very difficult to say “Hey... all of you working in the technology sector, none of you are productive.”

Goldin: But then its market share, it’s not even 2% of the GDP. The problem with measurement of productivity – if it does exist – is that it has been around since the 1990s. You tell me then, why productivity slumped from 2002 onwards? And, why is it a global phenomenon?

Quah: Computers are not about improving the supply side of the economy. It is about improving the consumer side. If technologies are not productive, we wouldn’t be worrying about robots taking over our jobs.


Are you saying that productivity improvement in the world will show up, moving forward?

Quah: No, I think we are already there.

Nurhisham: I think living standards will continue to improve but GDP won’t.

We have seen tremendous improvement in people’s lives in the last two decades. 

Just look at provision of government services, a lot of stuff is online now, we no longer have to queue up to get our work done.

These improvements don’t show in the GDP and doesn’t improve our salaries much, but it does turn up the living standards.

Price: Going back to the point Danny made, Apple seems to be the most profitable company in the world and in America now, they are talking about robot tax.

This is tax on companies that make huge profits by eliminating large parts of their workforce.

I think these companies that are generating enormous profits and pay relatively low tax, they’ve got a responsibility.

Quah: We can continue to be productive, but we have to think about how the ownership of technology might be completely reformed.

The worry about income inequality and tech giants making off with all of these gains is a problem as long as the ownership of the technology is vested in the hands of a few individuals at the top of the income distribution.

Suppose a technology of any kind is nationalised, then whatever profit gained will be accrued to all people, provided there is a clean government, governance, etc.

If this happens, we might be able to remove problems related to job security, income inequality and eliminate fears of insecurity as a whole, as the technology will be owned by the people. We have that within our means. We haven’t quite figured out how to get there and it won’t be easy as well, but it is getting easier to imagine.


Bringing things back to Malaysia, what would you say is the most pressing issue here within the social security context?

Nurhisham: I would go back to what Ian said just now, we need coverage.

In Malaysia, we have 14 million EPF members.

Out of that, half of them contribute to the fund. And out of those contributors, only 4 million contribute on a regular basis. So, we have 4 million there and 1.5 million in the civil service, which makes 5.5 million with coverage. The rest are not covered.

Let me give you more numbers. The Statistics Department has just released the distribution of income accounts.

The household savings rate for Malaysia is 1.3%.

That is a frightening number and it has been at that level for the past 10 years.

It is one of the worst in Asia. In US, it’s roughly about 5%. And1.3% is after EPF savings.

If you take away EPF savings, it’s -3%. It’s a pressing issue in Malaysia. Malaysian households do not save enough and people depend too much on EPF. The reasons for this include low financial literacy and income levels.

Quah: Still, the economy is growing in real terms but all that increase is going to capital. This reflects an imbalance.

Malaysia is running an overall trade surplus despite the fact that people’s savings are so low.

Nurhisham: I think it’s partly because of the demographics, given our large young population. Young people don’t save too much. As they age, the imbalance could slightly change.

If you want to increase the savings rate, you have to raise the income level relative to capital.

But then we have to look at a firm’s productivity growth as well. There are a lot of things that really need research and solutions.

The national savings rate is very high though, it is about 28% but when you break it down , a high proportion of that is corporate and the actual household savings rate is extremely low

So that’s the paradox.

Is it normal for a developing nation to be like that?

Goldin: Well, no. It is normal for maybe emerging markets but not in Asia.

Do you think we will see any change in our lifetime?

Nurhisham: I certainly hope so. We are in the financial literacy council with Bank Negara and the Securities Commission to educate people on proper financial planning and it has been very encouraging to see that a lot of young people are a lot more interested in managing their finances now.

What is it like in neighbouring Singapore?

Quah: First of all, savings rates are sky high in Singapore.

I can’t recite the figure off the top of my head but it is certainly much higher than 10% or 15%.

So there’s that on one hand but that itself is a reaction to something else, it is not something that happens exogenously.

We too have a productivity commission and we worry about what is happening to productivity.

We’ve got a system of government finances that is very scrupulous about how it manages those finances.

There’s a great deal of reliance on the private market to solve many challenges as well. The government will set the platform but it is up to the private sector to step forward to solve some of the problems.

We don’t have anything that extreme as what you’ve just described.

In fact 20 years ago, there were accusations that Singapore was saving too much and that it was growing simply because it was saving.

We don’t call it social security here nor do we call it having a social safety net but the government takes care of the income inequality problem in other ways through the provision of public housing, maintenance of public facilities, transport and health services.

My impression is that the New Malaysia is one that looks forward to trying to connect up all of these problems.

What is the extent of social inequality in Malaysia? It has been improving according to data but the sentiment on the ground is that people don’t feel it and that disparity is actually growing.

Nurhisham: The GINI Index has been coming down but remain a little on the high side.

Some of that reduction has been coming from the increase in wages and I think research has shown that a lot of that is because we are de-industrialising. 

The second point that I want to make is that when you look at inequality, there is a lot of heterogeneity at different levels.

Generally speaking, what we have seen is that the poor have done very well over the past few years, income growth has been fairly good and we have had the minimal wage come in. So improvement at the bottom is there and it is very visible.

What we’ve also seen is a lot of movement at the top but what we have not seen is a move in the middle.

So people that have been suffering the most in the past ten years, these would be people primarily from the urban areas – the M40s.

All these people at their earning levels, they have not been doing very well, I think there’s where the disconnect between the numbers and what people are saying come in.


So, it is a collapse of the middle class?

Nurhisham: Yes. I think it is because a lot of government assistance has gone to the bottom

I think their jobs are most affected by competition from other emerging economies like China, Vietnam and other low-wage economies.

We talk about Malaysia as being  a low-wage manufacturing based economy but the reality is that manufacturing actually pays quite well.

The average salary in manufacturing is about RM2,500 which is above the median wage.


Should the government now focus more on the M40s?

Nurhisham: I think as far as social issues are concerned,  they should address everybody, there should be a holistic solution.

A lot of things that have been affecting the M40s and the citizens as a whole – housing, healthcare, food inflation, those are really national issues.

Social mobility is another issue we need to keep track of.

What we have seen over the past 20 to 30 years, mobility has been quite good but that may not be true going forward.

Our children may not have better lives moving forward, so it goes back to the difference between the boomers and the millennials.

Price: Then again, that’s an international problem. First generation – not as well off as their parents.

Millennials are always cast as these narcissistic, self-serving bunch of people... but you know, they’ve had a raw deal.

I look at my two sons they work in the gig economy, they laugh when we talk about  owning their own homes, about having a pension.

They laugh because they don’t consider that that will ever be a possibility.

I find it astonishing that they are so lacking in recrimination.

The day that they wake up and realise (the situation) we should hide the knives.

It feels that we are not that far away from real civil unrest.

It’s not just the UK, it’s the same in the US.


What are some of the other social issues here and what can be done to address them?

Nurhisham: You look at what is happening at universities right now, the gender imbalance that we are seeing.

Right now, in Malaysia, it is 2:1 which is 2 females for every one male that are actually doing a graduate/undergraduate program.

When you enter working life, you’re in the marriage market, and a lot of these men are simply not sellable.

This can lead to violence because violence is committed by young men with no prospects.

That’s what we are seeing, we are seeing a lot of sexual harassment, violence against women. This is an underlining fundamental social issue.

One of the reasons for the imbalance is probably because a lot more boys drop out in secondary school.

This is for Malaysia specifically but it applies globally as well.

Arab Spring happened because we had a lot of young Arab men with no prospects.

Price: But many of them were well educated.

Nurhisham: Yes, they were well educated but they had no prospects.

Price: We didn’t use the term graduate barista ten years ago.

It’s a real phenomenon, it has always been a believe that learning is earning and that if you get a degree... your life chances will be better.

Nurhisham: I have two clerks in my department, one has a degree the other one has a Masters.

Is that a reflection of a lack of jobs or a lack of self-ability?

Nurhisham: I think it’s a few things.

The supply of graduates have also increased globally over the last 2 decades because higher education access has increased substantially. But there will always be the cream and these will have options.

How do we address this issue in Malaysia?

Nurhisham: I think we really need to reform our education system, you look at all the things happening now – with artificial intelligence, and all sorts of other changes on a daily basis in the world of business.

You need to have people who are very flexible, people who have very good soft skills and the only way we can inculcate soft skills into them is to actually hit them right at the point where the brain is geared towards picking the skills up.

That’s between the ages of one and five, it’s the preschool period.

Life expectancy has increased, is a national insurance policy doable and is it necessary?

Nurhisham: It has not been done, right now, we have a system made of the public sector and the private sector. The public sector is paid for by the government.

The public side is very good but it is overloaded.

We need to find ways of funding it so that it covers everybody at a reasonable rate. The only one who can do that is the government. 


Is that too much of a burden on the government?

Nurhisham: Yes, so there should be some element of sharing with the private sector or you could just raise taxes but that won’t be very popular. The other side is that you could end up like America. I don’t think anyone wants that.

As previous advisers to state banks, what are your views on the current financial and global markets from the stability point of view?

Goldin: My view is that there needs to be a lot of vigilance because there are a lot of risks going on from unregulated activities in hedge funds, credit card companies, bitcoin operations.

That and the regulatory framework is mainly backward looking.

Global debt levels are now a hundred trillion dollars higher than what they were in the last financial crisis.

They’re about US$350 trillion which is three times global GDP and the quality of debt is worse this time round, more of the debt is lower-rated.

We are also going to see much higher interest rates coming in and profitability of some of the big companies are going to be challenged.

But there are still a lot of growth opportunities.

Asia is better managed than the rest of the world.

I don’t see risk coming out of China, I think the Chinese are on top of most of their problems and their debt is underwritten by the state which has a lot of reserves. Still, it’s a fragile time.

Quah: I agree.

Also, we worry about financial systems because we believe that financial systems continue to have a useful function.

It is not just where people go and play with collateralisation and financial engineering products.

It is suppose to be a place where you bring together savings with real investment and real opportunities that will improve the prospects of the world.

So the question is, are the financial systems that we have fit for purpose?

One of the interesting things is that there is currently a process of creative destruction going on to the extent that the financial systems are not being that, to a good degree.

Private agents are coming in through fintech and other means which have their own set of problems which they are trying to solve.

It is going to be very peculiar if, following the 2008 financial crisis where the world spent trillion of dollars saving the banking system, you then have the banking system being undermined by three teenagers in cutoff shorts writing a new fintech program that replaces the need for banks to do financial intermediation.

But if it comes to that, the economy may get rebooted, millennials get new jobs. We have to be opened to the possibility that the financial system may be competed changed.  

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