KUALA LUMPUR: The Employees Provident Fund (EPF) is considering introduction of a two-tier contribution system under which lower-income members will contribute a higher percentage of their pay into the fund.
According to sources, the aim is to increase the retirement cover for lower income members whose contributions with the EPF currently are woefully inadequate to meet their retirement needs.
The sources said the proposal is at an exploratory stage and the EPF would canvass views from various interested groups, including the unions and employers before proceeding further.
The sources said figures from the EPF showed that currently the average contributor who retires at the age of 55 has only RM77,000 in his/her account.
If the high income contributors are excluded, the average amount in the accounts of most retiring EPF members falls to RM33,000.
“For most Malaysian employees, their savings in the EPF are their biggest financial asset, apart from their homes. This is a very worrisome picture, as it’s obvious that EPF members have grossly under-provided for their retirement needs,” said the source.
The source said that for a monthly income of RM500 after retirement, a member would need to have RM150,000 in a fixed deposit.
Another worrying fact is from an EPF survey conducted in 1995 where it was found that about 70% of those who withdrew their EPF contributions upon reaching 55 years of age spent all their savings within three years of withdrawal.
The source said there was an urgent need to educate EPF members that the money they have in the Fund was meant for retirement, and they should not regard it as an unexpected bonus to be enjoyed.
According to sources, the EPF was looking into new ways to improve the returns from its investments.
Currently, 75% or RM150bil of EPF funds are held in fixed income assets such as government securities, corporate loans and bank deposits, while the remaining 25% or RM50bil are invested in the local stock market.
Because of the low interest regime, the EPF is getting between 3.5% and 4% for its government papers, and even so, there is insufficient government papers to meet market demand.
Because of the low yields from its fixed income investments and poor returns from its equity investments, the EPF would be declaring a lower dividend for 2002, compared with the 5% declared for 2001.
Among the investment options being explored by the EPF are investment in completed commercial and industrial buildings, which give returns of between 7% and 8% and purchase of private debt securities.
To answer critics who feel that they can do better with their EPF money, the board is also considering allowing members to withdraw a bigger percentage of their contributions to purchase property, unit trusts and shares, but with certain safeguards.
MTUC president Zainal Rampak, when contacted last night, said that this was among many proposals discussed at the EPF board meeting last month.
“We are studying this and all other matters raised on ways to ensure members have enough savings to meet their retirement needs.’’
He said the fund’s management assured board members that they would stick to the main objective of enhancing savings for the contributors.
“They made it clear that the fund would not introduce any other additional schemes to encourage savings.”
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