Bank Negara Malaysia has issued a warning that the average Malaysian may exhaust their retirement savings 19 years before death.
This is due to the projected global life expectancies, which are expected to increase to over 77 by 2050. The central bank has emphasized the need to rebuild savings buffers that have been depleted by special withdrawals during the pandemic.
The Malaysia Government allows the people to make withdrawal from their EPF accounts during the COVID-19 pandemic. A total of RM145 billion (US$32 billion) had been withdrawn from the EPF by 8.1 million people.
In February 2023, Deputy Finance Minister Datuk Seri Ahmad Maslan said the median savings in the EPF accounts of all Malaysians declined 50% to RM8,100 in 2022 from RM16,600 in 2019.
“More than RM145 billion was withdrawn by 8.1 million individuals during the pandemic under four special withdrawal schemes. The Malays, who number more than seven million members, had (an average of) RM16,900 in April 2020. Now, they are only left with RM5,500. This is one of the reasons the government has decided not to allow any more special withdrawals,” he said.
Bank Negara has suggested implementing policies to enhance savings accumulation, such as lengthening the accumulation phase, ringfencing, and reinvestment. These measures involve reinvesting a portion of savings that would otherwise have been withdrawn upon the withdrawal age, thereby extending the accumulation period.
The central bank has highlighted that ringfencing will be particularly beneficial for members with continuous contributions after reaching the withdrawal age of 55 years old. By deferring withdrawals of their savings and continuing contributions by another five years to age 60, Employees Provident Fund (EPF) members aged 50 to 54 years old with incomes at the B40 threshold may benefit by up to an additional RM36,800 in savings. This could extend the sufficiency of accumulated savings post-retirement by an additional three years, improving the resilience against economic and financial shocks for retirees.
Insufficient retirement savings is a critical issue globally, and the World Economic Forum has projected a shortfall of US$400 trillion in global pension savings by 2050, mainly due to longer life expectancies and higher dependency ratios. Individuals entering retirement may find it harder to meet their post-retirement needs due to a shrinking working-age population adding a strain on prevailing social protection systems.