PETALING JAYA: Only 10.2% of Employees Provident Fund (EPF) members working in the formal sector would be able to afford a comfortable retirement with savings of RM1.3mil by the time they reach 60.
As for those currently in the 56-60 age bracket, there are just about 5% who would have this amount.
Basic savings is the benchmark sum that members should have to cover essential retirement needs. The amount was revised in 2024 from RM240,000 to RM390,000.
An estimated 21.5% of contributors aged between 56-60 have this basic savings.
About 28% of overall contributors could achieve a savings of RM650,000, which EPF categorised as “adequate savings” that could provide for “a reasonable standard of living during retirement”.
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Sunway University economics professor Dr Yeah Kim Leng said it is concerning that a significant number of those in the group nearing retirement do not meet the RM390,000 basic savings threshold.
“Closer monitoring and more granular socio-economic data are needed to determine the appropriate intervention policies and strategies,” he said.
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On the bright side, he pointed out that 18.5% of those in the 56-60 age group had savings deemed adequate or more.
(About 13.3% of EPF members in this age group had adequate savings of RM650,000 while another 5.2% could achieve RM1.3mil when they hit 60.)
This indicates that they would have sufficient savings for retirement.
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Yeah said it is important to determine if those who are nearing retirement possess other sources of wealth and income, such as financial and property assets as well as possible financial support from their children.
“The potential aged poverty issue might not be as dire given that their EPF contributions may not be the sole source of retirement savings.”
Yeah said the retirement age could be gradually raised from 60 to 65 in line with the move adopted by many nations.
“The gradual increase in the mandatory retirement age is a core strategy response, as evident in most countries facing inadequate retirement savings or unsustainable pension liabilities, in addition to longer life expectancy.”
He also called for targeted and innovative incentives mounted together with customised financial literacy and income enhancement programmes to boost savings.
Asked about the low savings of the 56-60 age group, he attributed it to withdrawals in addition to rising cost of living pressures, and uneven income growth.
He added that family size and dual generation burden along with an urban lifestyle are among the major factors that led to a lack of retirement savings.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the data suggested that wealth inequality is prevalent among EPF members.
“EPF has played its role to ensure its dividend rate is commercially competitive. Efforts to garner more contributions have been effective and showing good traction.
“Other policies must come in that will help provide the right ecosystem for workers’ income to grow so that they could contribute to EPF and accumulate sufficient funds when they retire.”
Afzanizam attributed the low savings to slower income growth and rising cost of living which resulted in lower purchasing power for most Malaysians.
He said policies on retirement savings would cut across various fields including education, health and infrastructure.
“Hence, we cannot think in isolation when discussing these policies as it involves multiple factors,” he added.
According to EPF’s Retirement Income Adequacy (RIA) Framework, “basic savings” will require members to have RM390,000 at 60. “Adequate savings” will mean savings of RM650,000 at 60, while a retirement sum of RM1.3mil is viewed as “enhanced savings”.
The framework encourages a monthly drawdown for 20 years, aligned with average life expectancy in Malaysia.
With basic savings, a member could withdraw RM1,625 in Year One and RM4,434 by Year 20.
As for adequate savings, a retiree would be able to afford monthly withdrawals of RM2,708 in the first year and RM7,389 by the 20th year.
Those with enhanced savings could take out RM5,417 in Year One and RM14,779 by Year 20, therefore allowing them a more comfortable retirement.
Based on the Belanjawanku 2024/2025 launched by EPF in 2024 to provide guidance on monthly expenditure, a single elderly person requires about RM2,690 every month to maintain a reasonable standard of living in retirement.
EPF has 10.6 million “active members”.
Its RIA framework allows them to set savings targets that reflect different retirement lifestyles and aspirations.
This is to enable them to have EPF savings as a source of continuous income.
Members could also utilise the framework to gauge the amount of savings they need to upkeep themselves during retirement.
