For an individual, especially one who is not pensionable, retirement planning is rightly a 30-year consideration but, in reality, most would only start to look at their financial circumstances in the last five to ten years to retirement.

While we should be concerned that 6.1 million out of the nearly 15 million Employees Provident Fund (EPF) members have less than RM10,000 in their EPF accounts, simplistic proposals to tinker with the dividend rate based on the amount held in one’s EPF account misses the broader, longer-term issues germane to establishing a complete retirement financing ecosystem.

The current system and its flaws

A comprehensive study done for the World Bank in 2014 outlined some broad weaknesses in the EPF system as follows:

i. Gross replacement rate (%) of 35.1% for men and 31.9% for women coming in at one of the lowest after Indonesia (14% for men and 13% for women) compared to Asean and OECD averages (c. 54%). In other words, men receive on retirement 35% of their gross pre-retirement annual earnings notwithstanding that we have one of the higher total contribution rates of 23%. The various withdrawals allowed by EPF likely lead to this scenario.

ii. Fragmentation in the management of retirement savings with various institutions and government departments/agencies managing retirement benefits for their respective niches, eg Armed Forces Fund, Public Service Department for civil service pensions, Socso, EPF and the private retirement scheme (PRS).

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