Human Resources Minister M Kulasegaran recently announced that the Malaysian government is looking to review the current retirement age of 60.
This announcement was made in view of findings from the Social Security Organisation (Socso), which revealed that seven in 10 retirees will deplete their savings in less than two years while two in three retirees will live with RM950 per month until the age of 75.
This indicates a need for urgent action to address the high number of retirees who are not financially prepared to see through retirement. Unfortunately, increasing the mandatory retirement age will not be as effective or impactful as one might imagine. When one takes a closer look, the core reason for the lack of retirement savings is due to low salaries and wages.
Social safety and investment programmes such as the Employees Provident Fund (EPF) and Amanah Saham Nasional Berhad (ASNB) were established to ensure sufficient long-term savings for retirement. However, these programmes are currently dominated by those from the upper-income bracket. Are they then able to fulfil their primary role of acting as adequate safety or support nets for wage earners from the lower income bracket?
According to EPF’s Annual Report in 2016, the top 0.4% of EPF members collectively own RM47.2 billion worth of savings, more than the combined savings of the bottom 51.9% of its members, who collectively own RM43.9 billion.
This is compounded by report findings by the Khazanah Research Institute (KRI) in 2015, which found that one in five EPF members aged 51 to 55 (nearing retirement) have less than RM10,000 in retirement funds, with the bottom 13.5% having accumulated an average savings of RM5,621.
Meanwhile, the 2017 annual report of ASNB showed similar trends. The report illustrated that the bottom 76.37% of Amanah Saham Bumiputera (ASB) unit holders have an average of RM563 in their accounts, while the top 0.23% have RM772,223.
Similarly, the bottom 97.85% of Amanah Saham Nasional (ASN) unit holders have an average of RM211 in their accounts, while the top 0.04% have an average of RM938,121. Taking into consideration that RM200,000 is the maximum investment per unit holder, the high account balances of top unit holders suggests large sums of investments and many years of dividends.
The above information demonstrates the stark income inequality among our richest and poorest, where only top or higher income earners have sufficient income to accumulate savings and investments, while lower income earners are unable to do so. This indicates that lower income earners do not earn sufficient wages that enable them to accrue sufficient savings required for retirement.
Low and static salaries and wages among Malaysian workers have been repeatedly highlighted and emphasised across the past few years. The Department of Statistics Malaysia’s Salaries and Wages Survey Report 2016 showed that half of Malaysians earn less than RM2,000 a month, with the median income of Malaysian citizens amounting to only RM2,000 a month. Consider the fact that the current minimum wage is proposed to be RM1,050.
This trend is supported by EPF data, which stated that 83% of its active members earned less than RM4,000 in 2015. Lower-income households and individuals have limited capabilities in saving sufficiently for retirement.
The situation is exacerbated by the increasing cost of living and household debt. Bank Negara announced in 2017 that the expenditure of the bottom 40% (B40) of Malaysian households had increased at a faster rate compared to their income.
The average B40 income level grew by 5.8% annually from 2014 to 2016, compared to 6% growth in household spending during the same period. Household debt to gross domestic product (GDP) among Malaysian household remained high at 89.1% in 2015, a 2.3% increase from 2014.
The data indicates that low salaries and wages are significant barriers to accruing sufficient savings for retirement, especially among lower income earners.
Increasing the number of better-paying, quality jobs would be a more effective solution than increasing the retirement age. Higher salaries and wages are better catalysts in ensuring improved household savings and financial resilience, consequently enabling sufficient contributions for retirement.
Job creation to meet this challenge is a tough task which requires good and vibrant business environments, adherence to strong human rights frameworks and fair regulations.
A multi-ministerial approach, led by the human resources ministry, is therefore required to plan and implement actions that support salary and wage growth among lower income earners. Improving public goods and delivery systems, such as public transportation, internet services, city planning, water and electricity provisions, could enhance production capability and wage growth.
It is only through cumulative action that the problem of insufficient retirement funds can be truly addressed.
Jade See is a research officer with the Galen Centre for Health & Social Policy.
The views expressed are those of the author and do not necessarily reflect those of FMT.