To put Malaysia’s economic and social development into context, we have to acknowledge that 65 years after independence from the British, a typical Malaysian born at the time of Merdeka will retire into old age poverty.
Even the government acknowledges Malaysia’s social protection for seniors is worrying following the Covid-19 withdrawal programmes which many people, including the CEO of the Employees’ Provident Fund (EPF) at the time as well as the current finance minister, warned about from the start.
EPF members have withdrawn around RM155 billion of savings, according to deputy finance minister Shahar Abdullah. This is equivalent to 15.5% of the total fund size. The concern is not so much the amount but the distribution of the withdrawals.
As at June 30, 6.62 million, or 52% of the 12.78 million EPF members aged under 55 had savings below RM10,000, equivalent to RM42 per month in retirement. Almost five million members or 75% of these are Bumiputeras, the group Malaysia’s development policy is supposed to have favoured most since 1957.
There are 3.2 million members under the age of 55 whose savings are at a “very critical” level, that is, less than RM1,000, and 2.58 million or 81% of them are Bumiputeras.
Of the 256,300 members currently aged 54, half have the equivalent of only RM154 per month in retirement. The household poverty line is RM2,208 per month, with RM1,169 for food.
Among active contributors, 73% do not have adequate basic savings and 84% of all members are in this position. More than a decade of pension progress has been wiped out. The percentage of active members with adequate basic savings has declined to where it was 10 years ago and the total number is below levels seen years before that.
Terrifying as these numbers are, they are the tip of the iceberg because EPF and other formal pension schemes cover only around 57% of the population. There are less than half a million private retirement scheme (PRS) members and only 4% of the elderly population receives basic social protection from the government.
Looking beyond EPF, around 16.43 million people, or 68.9% of the working age population, have no formal or regular pension cover. This includes 7.26 million people outside of the labour force, 680,000 people unemployed, 4.28 million underemployed in informal sectors, and 4.26 million in formal employment but without regular pension savings. Taken together, around 87% of the working age population have inadequate cover.
Of course, there are already 3.6 million people over 60 years old, most in retirement, and an estimated 2.6 million with inadequate cover bringing a total of 69.4% of the adult population facing or living in poverty in old age.
The tired and unimaginative mantra that Malaysians must save more and work longer will not work in the face of this reality. Only those at the early stages of their working life aiming for the lowest threshold of retirement adequacy can save enough. Working longer adds virtually nothing to retirement income.
Somebody aged 40 on a median salary but with no pension savings would have to save 48% of his monthly wage to get to the minimum pension savings threshold. Someone who is aged 50 would have to save 97%.
Based on current contribution levels, anyone in these age groups with no pension fund would have to extend their working life beyond the grave in order to reach the threshold savings levels.
So, as Malaysians look forward to celebrating 65 years of independence, we must reflect on whether the social and economic development policy of the successive governments has delivered the promise of a decent living standard for those born at the same time as Malaysia itself.
Or whether, as we look forward to the next general election, at least someone in the running for election will offer some alternatives and some hope.
The views expressed are those of the writer and do not necessarily reflect those of FMT.