Interest grows in nest egg

PETALING JAYA: More people are contributing voluntarily to their retirement savings in the Employees Provident Fund (EPF), which is good news for a fast-ageing population like Malaysia’s.

According to a briefing on Sunday on the fund’s financial performance, voluntary contributions increased by 17.2% in 2023 compared with the previous year – that’s 133,000 more members participating in the voluntary contribution programme.While the EPF announced a respectable dividend of 5.5% for 2023, its CEO expressed concern about the number of members that do not have enough savings for their retirement, hence the encouragement to contribute voluntarily.

Posting positive growth figures consistently would certainly encourage more members to opt in to the voluntary programme, said experts, and help them to grow their savings faster ahead of their retirement.

Sunway University economics professor Dr Yeah Kim Leng said the EPF’s good performance would likely motivate more contributors to move their additional savings to the fund.

“There are already contributors who have taken advantage of EPF’s superior returns compared with other investments, to maximise their annual contributions to the EPF,” he said.

Since July 2022, the EPF has allowed members to make voluntary contributions in addition to the mandatory deductions made from their monthly salaries by their employers.

Members can start with a minimum amount of RM10 through the KWSP i-Akaun app, with a maximum contribution of RM100,000 a year.

In fact, that maximum cap should be scrapped, said Malaysia University of Science and Technology Economics Prof Geoffrey Williams.

“It is a good move for people to make voluntary contributions because they can rebuild their accounts quicker and EPF offers good returns at 5.5% compared with less than 3% in fixed deposits, for example.

“In fact, there should be no upper limit on voluntary contributions and they should be 100% tax deductible,” he said.

Malaysian Coalition on Ageing chairman Cheah Tuck Wing said everything must be done to increase savings as the burden on the younger generation to support the elderly will become greater as the population is ageing rapidly.

This fact underlines the need for sufficient retirement savings by the public, he said.

“EPF savings would be the safest form of savings and so far, EPF has been giving out higher returns compared with fixed deposit schemes, mainly due to the compounding effects,” he said.

He also called for all workers, from both the formal and informal sectors, to seriously start saving and planning for their retirement.

“For those in the informal sector it’s even more crucial because they are more vulnerable to retiring with little or no savings.

“So, make it a point to contribute at least 25% or more of your income to the EPF,” Cheah said, adding that investment diversification would also be important.

During Sunday’s media briefing, the EPF also revealed that 40% of people in the labour force – mainly comprising informal sector workers – are not covered for old age protection.

This translates to 6.8 million people as at December 2023.

However, Prudential Assurance wealth planner Cheryl Saw said some of her clients hesitate to put additional funds into EPF due to cashflow concerns.

“For example, if there is an emergency such as a car accident or something medical-related, they would not be able to withdraw the funds right away as the money is locked for retirement.

“When it comes to concerns like this, I would advise people to diversify their investments, perhaps set up a separate account for emergency funds. Always have a back-up plan,” she added.

Saw has also heard clients say they feel they may not live long enough to see retirement age, hence they don’t feel the need to stash away more funds.

“But the pressing matter should be, ‘What if you don’t have the funds to retire?’ They should also remember how their loved ones or family members are set to benefit from the funds they saved up,” she said.

The EPF dividend rate for 2023 was 5.5% for conventional savings and 5.4% for syariah savings; the payout for conventional savings is RM50.3bil while for syariah savings, it is RM7.5bil.

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