Low EPF Savings Due To Lack Of Financial Literacy

The Malaysian Financial Planning Council (MFPC) expresses support for the government’s decision against further EPF withdrawal schemes. While we empathise with the rakyat’s struggles during the present times, further withdrawals from their retirement nest egg may cause bigger problems in the future, particularly after retirement.

Saving for retirement is essential. When you save for retirement, you are saving for your future. When you neglect to do so, you run the risk of not being able to take care of yourself when you are older and possibly in ill health. Your retirement goals should come before saving for your children’s education or going on vacation. Having a retirement fund is crucial for our and our families’ financial and emotional wellbeing. This underscores the importance of having adequate savings and income for future security as well as to withstand any future financial shocks.

Mandatory EPF contribution represents the main pillar in the rakyat’s financial old age security. More than 14 million Malaysians rely on EPF as our safety net in our old age. The approach of using EPF savings for emergency needs will certainly cause a severe impact as members face very low savings in their retirement years, compounded by other uncertainties such as rising healthcare costs. The issue of insufficient savings is at an alarming stage as the median savings of the B40 were at RM1,000. If this level continues until their retirement, they would have only RM4 a month to spend for 20 years, and for the M40, their savings of RM25,000 would translate into RM104 a month for the same period.

In view of the fact that compulsory EFP savings are clearly not sufficient for many contributors to survive during their retirement years, MFPC strongly encourages initiatives to encourage and offer incentives for long-term saving through our other pillar of old age security, the Private Retirement Scheme (PRS). This, we are positive, will help ameliorate the issue of insufficient retirement funds.

To exacerbate the challenges, Malaysia’s changing demographics mean that our citizens will live longer, with life expectancy expected to increase to 80 years. We are fast approaching becoming an aging nation as people aged 60 and above will comprise 15% of our total population by 2030, just 8 years. Further, about 40% of the Malaysian population is estimated to be uncovered by any form of social protection and expected to face insufficient funds for retirement. We could be walking into a “retirement crisis”.

MFPC’s own national 2020 study on Financial Capability and Utilisation of Financial Advisory Services in Malaysia reveals that an alarming number of Malaysians generally have the low financial capability, do not know how to manage their money, and do not plan ahead and save.

Poor financial literacy among Malaysians is one of the main reasons for the low savings of around 36%. This lack of financial literacy could leave the next generation of retirees significantly poorer and sicker (due to not having enough savings to afford proper healthcare). It creates the risk of a “lost generation” of older people entering retirement in poor health and without enough money as support

Cognisant of the challenges, MFPC is at the forefront of raising Malaysians’ financial literacy. This reflects our corporate social responsibility to the rakyat and the nation and underscores our initiatives to meet the crucial need to elevate financial knowledge among Malaysians, many of whom are struggling to meet everyday living needs.

It thus goes without saying that MFPC is committed to raising Malaysians’ awareness of the importance of financial planning, of which retirement planning is an integral component. Our various year-round programmes in financial planning devoid of any element of commercialisation or payment for Malaysians of various ages and backgrounds attest to this. We are extremely heartened the programmes have been very well received with extremely encouraging participation and have benefitted at least 500,000 Malaysians nationwide since we first conducted them in 2007.

Taking the appropriate actions is imperative. To augment our, the government’s and the various authorities’ efforts, we urge financial institutions to upgrade their financial intermediaries including bankers, unit trust consultants, and insurance agents in professional knowledge and skills to provide Malaysians with the critically-needed retirement planning advisory services.

We are confident our collective collaborative initiatives will benefit Malaysians in looking forward to financially secure and stress-free retirement and old age.

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