PETALING JAYA: The Employees Provident Fund has been urged to carry out a makeover in the wake of comments by the finance minister which indicate that the EPF has not been a credible scheme for many contributors.
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Finance Minister Tengku Zafrul Aziz said in an interview that 42% of contributors had less than RM5,000 in their Account 1, with 32% of that group having RM1,000 or less.
Currently, 70% of one’s total contribution goes to their Account 1 which they cannot access until they are 50, with the remaining going to Account 2 which can be used to help pay for one’s first home, education expenses and medical bills.
Geoffrey Williams, an economics professor at Help University, told FMT that the current EPF system is long overdue for a change, and argues that given the information expressed by Tengku Zafrul, now might be the time to act.
He suggested “a complete overhaul of the social welfare system” that would “create a universal system of market friendly social protection.”
The first step would be to stop all forms of withdrawal, and treat the EPF more like a pure pension scheme rather than as a savings plan to ensure people retire with a healthy balance to draw on.
It was recently announced that contributors who had lost their jobs could withdraw up to RM500 a month from their Account 1 for the next 12 months in light of the economic strain caused by the pandemic, but Willilams disagreed with the scheme.
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“We need direct allocations to put money in the hands of the rakyat now, not ask them to deplete what little savings they have,” he said.
Robert Foo, who owns a financial planning firm, said that he has often called for changes by the Securities Commission by which people should be able to direct their mandatory retirement contributions to private or self-managed funds.
“It is a fact that many people don’t have enough in their EPF when they retire. After they retire, their EPF usually only lasts them about 3 years,” he said.
He said there had been resistance to his suggestions because of the government’s reluctance to allow big players into the game, as well as fears over the amount of money that would leave the country and end up in overseas investments.
“I have told the Securities Commission to let the people take the risk (of managing their own pension).”
Williams said that the changing job landscape was one reason for the low EPF totals, as payments may not be made regularly by the self-employed or those in the gig economy.
Low wages and cash-in-hand arrangements also play a part he said, as contributions may be very small or not made at all in these situations. – FMT