Ensuring a healthy nest egg

KUALA LUMPUR: Measures must be taken to ensure that there are sufficient savings before allowing the proposal to make it mandatory for Employees Provident Fund (EPF) contributors aged 55 years and above to withdraw their savings periodically, say economists and consumer groups.

Malaysia University of Science and Technology economics professor Geoffrey Williams said that it is extremely important that final savings in EPF member accounts should be maximised first on retirement and then protected and conserved over as long a period as possible.

“So it makes sense to restructure the arrangements for Account 1 to make sure as much as possible is saved there and that it can provide as high a monthly income as possible over as long a period as possible,” he said when contacted yesterday.

Williams also suggested, in order to compensate, the EPF should offer additional voluntary savings products through EPF’s Account 2 and separately to become a holistic and trusted savings and pensions provider across all aspects of the people’s financial needs.

“EPF should also look at ways of helping people build back their funds and remove the cap on voluntary contributions.

“The government should also consider giving 100% tax exemption on voluntary savings until members have reached the RM600,000 adequacy ratio,” he said.

Manager V. Dave, 54, said that it was a good idea to make it mandatory for new EPF contributors aged 55 years and above to withdraw their savings periodically.

“However, the EPF should set a certain limit for the withdrawals or members might deplete their savings pretty quickly.

“Perhaps, limit it between RM500 and RM1,000,” he said, adding that they can be allowed to withdraw only monthly or quarterly each year.

Federation of Malaysian Consumers Associations’ (Fomca) president Datuk Dr Marimuthu Nadason said that he disagreed with such a mandatory withdrawal proposal, saying that members need more savings when they retire.

“The most important part of the pension fund is that we save for our retirement,” he said.

He also stressed that the government must conduct in-depth studies before implementing any measures to allow more withdrawals by the public from their EPF savings.

Marimuthu said based on surveys by Fomca, it was found that people are still working past retirement age because they lack financial support.

“The retirement age for the private and public sector is 60 years old; perhaps the government can consider raising the EPF withdrawal age from 55 to 60 since there are still those who find work after retiring.

“The government must study the mechanism before deciding on allowing more withdrawals from the public’s pension fund.”

Centre for Market Education (CME) chief executive officer Dr Carmelo Ferlito said he understood the government’s point of view in wanting to do so, but such an attempt will transform the EPF into a regular pension.

“I think, however, that the issue will remain for those who have not enough savings and is the true structural problem which is not the working of the pension fund, but the saving capacity.

“I believe that a more structured system would be better, with different options in place, as it is difficult to imagine a solution that fits everybody,” he said.

In a statement, EPF said the proposal to formalise the consideration to introduce a monthly drawdown mechanism for members are still being studied.

The pension fund said it would continue to take into account the ability and readiness of members to make such transition.

“The proposed changes will most likely require a generational change and the conversion will take time.

“Such a transition is necessary given that the average life expectancy has increased from 54 years in 1957 to 75 years now, and was projected to further increase in the future, translating into longer years spent in retirement.

“EPF will continue to encourage members to voluntarily convert to the monthly drawdown option,” it said.

The monthly drawdown is where a portion of the member’s savings, up to a certain limit, will be converted into a monthly income and the remaining portion can be withdrawn lump-sum.

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