An alarming number of Malaysian workers – well over six million who are self-employed or in the semi-formal sector – are not covered by any retirement scheme due to a lack of a comprehensive social protection system.
Employees Provident Fund (EPF) deputy chief executive officer (Strategy) Tunku Alizakri Alias said 10% of the labour force was covered under the pension scheme and 46% under the EPF because this is mandated by law, but another 44% are left out.
While Alizakri expresses his concerns over the 44% persons, it is unfair to say that this group of people needs to upscale themselves as fast as possible.
It is not as if every single one of the 44% chose to be a nasi lemak seller, for example, or adamantly wanted to opt for self-employed job.
According to PKR Trade and Investment Bureau Chief Wong Chen, the fact that 44% of workers are working outside the system, is just a reflection of how unsustainable our formal economy is.
“The grey economy is so large that in time, if we don’t formalise the economy we will face tremendous pressure to provide social safety net for those with no pensions.
“These challenges are symptoms of poor economic planning and a regime of very low wages,” says Wong.
He adds that one needs a minimum of RM3,000 a month of RM36,000 a year to retire with consideration to medical expenses.
“If we expect to live for another 10 years post retirement, a person will need a minimum of RM360,000.
“If we factor in inflation over ten years the time value money figure at retirement is closer to RM420,000,” he adds.
Unlike developed countries, people have the choice to rely on self-directed investment accounts such as Individual Retirement Accounts offered by banks or 401k for their retirement income.
A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out.
Taxes are not paid until the money is withdrawn from the account.
According to a study by students in Universiti Teknologi Mara, Kedah, in the US, half of its total retirement assets are held in accounts such IRAs and 401k.
“Some workers seek financial experts to allocate their savings in retirement accounts but most will decide on their own as where they should save their money for retirement.
“Majority of the workers has no financial management and face losing their savings on non-performing financial instruments.
“Because of this, some of them are pessimistic about their own ability to make a good investment decision.
“On the same issue, in Malaysia, current government policy makes it compulsory for all its working population to set a minimum amount of their salary into the Employee Provident Fund (EPF),” says the report.
However, options such as IRAs and 401k are not applicable here and the government lacks involvement in educating new employees who enter into the working world on the importance and existence of the EPF.
It is not about forcing people to contribute to their future wellbeing, as said by EPF chief executive officer Datuk Shahril Ridza Ridzuan, the question is more of whether the 44% have enough to even think about contributing to the EPF.
Just as how EPF announced the option for employees to reduce their EPF deduction recently this year, the reason for doing so was to aid employees who did not have sufficient monthly disposable income.
If even for formal sectors such a measure was taken to increase disposable income, what more the semi-formal sectors?
To be able to contribute to EPF could be deemed as “luxury”, not so much about whether they are aware that they need to save up for rainy days.
Unemployment rate is also increasing in Malaysia and has not improved.
To say that the trend of young people who are increasingly uninterested in traditional jobs may not be the best judgement.
It is not about interest, it is the lack of guidance, good education and grooming of graduates prior to entering into the working world.
Soo Wern Jun