Members and experts share their suggestions on what might work in the best interest of EPF contributors.
WHEN the news first broke out earlier this month that the age for full withdrawal of Employees Provident Fund (EPF) savings would be raised from 55 to 60 years, it caused quite a stir.
The Finance Ministry had announced that the planned amendment to the EPF Act 1991 was a “consequential move”, following the passing of the Minimum Retirement Age Bill 2012 in Parliament last month, which extends the minimum retirement age for private sector employees from 55 to 60.
Many quarters and individual contributors objected to the idea, saying it was unfair for those who already had plans for their retirement funds, and called for more flexibility for their EPF withdrawals.
Administrative executive Ng Yoke Lin, for one, is not in favour of the suggested move.
“I wouldn't want it. I may not want to work full time till I'm 60. What about those who retire before that? In my case, if my house is not fully paid by the time I'm 55, I plan to withdraw my money to pay up my housing loan,” she says, adding that many of her entrepreneur friends also plan to dip into their funds to help keep their businesses going.
But Ng, 51, has an interesting suggestion: instead of forced savings, why not use the carrot approach instead?
“Even if the full withdrawal age is maintained at 55, the EPF and the Government could come up with good incentives that make people want to leave their money in the EPF,” says Ng.
“If the incentive is attractive enough, I'm sure most people would be happy to put their money back in, or not even take it out in the first place.
“Contributors should be given options as some people really need their money. To not allow them access to their own hard-earned cash would be really unfair. Also, what if I don't live to 60? That will mean I will never be able to enjoy my money.”
Cheated by death
Interestingly, a check with Department of Statistics Report on Malaysia's 2010 Vital Statistics found that 130,135 Malaysians died in 2009. The report, which was released last November, also noted that 8,494 of those who died fell within the 50 to 54 age group, while 10,096 deaths fell within the 55 to 59 age group. In total, 48,023 Malaysians never made it to their 60th birthday in 2009.
Another 53-year-old EPF contributor, who declined to be named, says fixing the withdrawal age at 60 would be a disadvantage for her as she has already retired but she would have no access to her EPF money until she turns 60.
“A good way to overcome this is to allow the withdrawal of annual dividends from age 55 in the form of monthly payments. This way, the principal amount saved is kept untouched till 60 and the contributor can enjoy the annual dividends.
“I am not planning to withdraw my EPF money until I am forced to at age 75 as it is the safest investment', giving the highest interest, compared to keeping my money in fixed deposits. But when I need to, I would like to arrange for a monthly withdrawal of RM4,000 to RM5,000 of my annual dividend, but still leaving my principal intact,” she says.
The issue first came to light when Deputy Finance Minister Datuk Donald Lim Siang Chai announced on July 16 that the age for the full withdrawal would be raised to 60, and partial withdrawals fixed at 55. Currently, contributors can make partial EPF withdrawal at 50 and full withdrawal of their savings upon retirement at 55.
He said the decision had already been made and that it was only a matter of time before the amendment would come into effect, and that the Government was looking at providing a transition period for contributors who have already planned to withdraw their contributions within the next few years.
However, EPF public relations general manager Nik Effendi Nik Jaafar, in an immediate reaction, was reported as saying that the matter was status quo and the full withdrawal age was maintained at 55.
Meanwhile, workers groups such as Cuepacs had called for workers to be given options pertaining to their withdrawals, and for careful scrutiny over the issue before any changes were implemented.
And the MTUC only said that it had not been consulted and was in the dark over the matter.
On July 23, Human Resources Minister Datuk Seri Dr S. Subramaniam also reaffirmed the existing withdrawal age, and was reported as saying that any changes would be made “only after adequate consultation with stakeholders”.
In a phone interview with Nik Affendi last week, he again confirmed that there are “no changes” to the current system.
“At the moment, there are no plans to amend the withdrawal age. There is no question of that. Even though the withdrawal age is 55, our members are free to keep their money in the EPF until they are 75,” he says.
In a nutshell, the EPF, which is a government agency under the Finance Ministry and governed by the EPF Act 1991, is a mandatory savings and retirement fund for Malaysians who are employed in the private sector. Contributions are made by both employee and employer, at 11% and 12% respectively, but some employers contribute more than 12% as an incentive for employee loyalty.
The EPF consist of two accounts Account 1 (which stores 70% of the contributions) and Account 2 (the remaining 30%).
Account 1 is restricted to withdrawal only when a member reaches the age of 55, is incapacitated, leaves the country, or dies.
Account 2 allows for withdrawals for several reasons, such as down payment for a member's first house, education financing, medical expenses, investments, or for partial withdrawal at the age of 50.
It is interesting to look at Thailand and Singapore for comparison.
Thailand also has a Provident Fund for its workers in the private sector. (Retirement age in Thailand is 60, but employees in the private sector can opt to work beyond 60.)
According to the Provident Fund website (http://www.thaipvd.com), the fund is established under a mutual agreement between the employer and employee.
Contributions are made voluntarily by the employee from a range of 2% to 15%, on condition that the employer's contribution must at least match that of the employee's. Termination of membership comes about by one of the following three factors retirement at 60 or older, resignation or death. Upon membership termination, members are entitled to a full amount withdrawal.
Singapore, on the other hand, adopts a more complex and multi-tiered system called the Central Provident Fund (CPF) which is applicable for workers in both the civil service and the private sector (albeit with slightly different rates).
(Singapore's retirement age is 62, but its Government is working towards obligating employers to re-employ workers aged between 62 and 65, and subsequently 67 years of age and beyond.)
According to the CPF website (http://mycpf.cpf.gov.sg), the fund consists of three accounts Ordinary Account, Special Account and Medisave Account.
CPF contributions are made by both employee and employer, but the percentage varies depending on the age group of the employee.
In general, the total contribution by both employee and employer ranges from about 11.5% to 36% per month, subject to a ceiling amount in each age group.
Funds in the Ordinary Account can be withdrawn for housing, investment or other approved purposes, while the Special Account is dedicated for retirement, and can be used for investment in retirement-related financial products.
Medisave funds are meant only for medical/hospitalisation expenses, and the percentage that is credited into this account increases with age, on grounds that an individual's need for medical care increases significantly as he or she ages.
At the age of 55, a fourth account (Retirement Account) is opened for CPF members.
Members can withdraw a lump sum from their CPF savings, but only what is above the CPF Minimum Sum (currently fixed at S$139,000) and the Medisave Minimum Sum (currently fixed at S$38,500). Upon reaching the age of 65, members will receive monthly payouts until their entire Minimum Sum is fully consumed, which is estimated to last about 20 years.
On the EPF, the question still remains as to whether the withdrawal age ought to be increased, albeit with serious consideration.
Lawyer K. Siva Kumar, who is the head of Employment Practice Group of Skrine & Co, believes that raising the withdrawal age is a “logical consequence” of the Minimum Retirement Age Bill.
“The whole purpose of having a retirement fund is for it to sustain you for the rest of your life. The question now is whether the EPF should act as a parent and enforce the withdrawal at age 60, or allow the EPF members to act independently and make their own choices. I think what would be fair would be a transition period,” he says.
For those who are already 54 and planning to retire next year, he says that this might come as too short a notice for them.
“But if one is only 50, he still has five years before he hits 55. That should be enough time for him to sort out his financial matters.
“The reality of the matter is that there is no right or wrong answer. The EPF has about 13 million members, and everyone will have different plans.
“What the EPF needs to look into is what is in the best interest of the majority of its stakeholders, while at the same time being fair to the minority,” Siva Kumar says.
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