Plan won’t affect current EPF members

PETALING JAYA: A proposal to implement a monthly pension payout scheme for Employees’ Provident Fund (EPF) members has led to divergent responses regar­ding the feasibility of such an idea.

This comes amid the Finance Ministry’s latest explanation that the proposed scheme will not affect existing members but only new contributors if it is introduced.

ALSO READ: Malaysians want a say in how they receive payouts

“For these members, the transition to this structure will be voluntary,” said Deputy Finance Minister Lim Hui Ying.

The proposal was first revealed in the 13th Malaysia Plan that was unveiled to the public last Thursday, stating that the government is considering the possibility of separating EPF contributions to “retirement savings” and “monthly pensions”.

Yesterday, Lim explained that the EPF savings will be divided into two components, which are the flexible savings and income savings.

Funds from the flexible savings can be withdrawn at any time, while funds in income savings will be paid out regularly until the funds are fully depleted.

“The goal is clear and that is to ensure that people can manage their retirement savings in a more structured, fair and sustainable manner,” she said in a Facebook post.

However, Lim stressed that this remained a proposal for now and the government would heed public feedback on the matter.

Financial experts, when contacted, said the proposal for the pension payout may be the way to go to ensure sustainable retirement funds, given the longer life span of Malaysians now.

“A monthly payout model will significantly shift the way Malaysians approach retirement planning, said Malaysia Literacy in Financial Education Association founding chairman Amy Seok said.

“Traditionally, receiving a lump sum upon retirement placed the responsibility of fund management entirely on the individual.

“With a structured monthly payout, Malaysians can benefit from a more predictable and sustainable income stream, reducing the risk of overspending or poor investment decisions,” she said.

However, she said this also means Malaysians will need to adjust their financial mindset towards structured budgeting and gradual consumption.

“It emphasises the need for better financial education early on, so individuals can plan supplemental income through side savings, investments, or annuities to complement the monthly payouts,” added Seok.

She was of the view that many Malay­sians are not fully equipped to manage large retirement lump sum payments effectively, citing findings from Bank Negara and the Credit Counselling and Debt Management Agency.

“The proposed monthly payout scheme acts as a protective mechanism as it limits exposure to bad financial decisions and ensures consistent cash flow that can cover essential living expenses.

“It may not cater to everyone’s preferences, especially those who want flexibility for major life plans like buying property or starting a business, but for the average retiree, it offers peace of mind and stability,” she said.

Sunway University economics professor Dr Yeah Kim Leng said the proposed monthly withdrawals are part of ongoing and necessary pension reforms to ensure old-age income security.

“Given the long-term nature of pension reforms, current initiatives such as monthly pension payout, aligning withdrawal age with retirement age and raising the mandatory retirement age have become more urgent as Malaysia’s population is ageing faster than expected,” he said.

“Various studies by EPF, think-tanks and universities have shown that the majority of retirees exhaust their lump-sum payout within a few years.”

Moreover, with advancing age and longer unhealthy life span, the older population requires greater healthcare and aged care, he said.

“Without adequate income, these healthcare and aged care burdens will have to be borne by the government, and ultimately the taxpayers,” he added.

Prof Yeah said the current EPF mandatory retirement savings scheme for the private sector, which covers over 60% of the population and the pension scheme for civil servants, which is inadequately funded, have to be re-designed to ensure sustainability, full population coverage and benefits that will safeguard the welfare of current and future retirees and the older population.

“Most countries, including the United States, United Kingdom, Australia, Europe and those in the region, such as Singapore, Taiwan, and other Asean countries, have monthly payouts as part of the contributory pension schemes to balance lifetime income security (annuities) with flexibility (lump sums) to cater to retirees’ needs,” he said.

“While the monthly withdrawal or annuities is made optional in some countries with defined contribution schemes, it is better to have a basic mandatory monthly scheme that includes government participation so that the welfare of the aged popu­lation is safeguarded,” he added.

Bank Muamalat Malaysia Bhd’s chief economist Dr Mohd Afzanizam Abdul Rashid said EPF members should have the option to decide what’s best for them.

“Perhaps, what is more important is to have an engagement session with the members to get a clearer picture,” he said.

The EPF said on Friday that any decision on such a scheme will involve engagement with key stakeholders and careful consi­deration.