Malaysians resist saving for retirement despite warnings

KUALA LUMPUR (Nov 1): Babs, name has been changed, is driving Grab despite being in her 60s.

She has a house and a husband. Her children are all grown and no longer living at home. For the time being, she is healthy and doing e-hailing to replenish her coffers.

When asked what happened to her Employee Provident Fund (EPF) savings, she scoffed before saying it was “long gone.”

Vivacious and fiercely independent, she knows the clock is ticking and she fears the day when she will have to depend on others for the simplest things. The thought of not being able to afford basic necessities worries her.

“Start saving now. Make sure you always have money (for retirement),” she told Bernama.

While she is not poor, Babs is not alone in facing poverty in her golden years. Elder poverty is a looming iceberg, not only for Malaysians in and heading to retirement, but also for their families. This does not bode well for the country’s future as the elderly population increases while the workforce shrinks.

As of August, Malaysia has 3.9 million people who are aged 60 and above, according to the Department of Statistics Malaysia.

This figure comprises 11.6 per cent of the population. Seniors aged 65 and above are 2.6 million, comprising 7.7 per cent of the population, which makes Malaysia an ageing nation. The World Bank predicts the country will hit aged nation status with 14 per cent of the population aged 65 and above by 2040.

At the recent 2024 National Conference for Ageing (NCA) in Putrajaya, participants gathered to discuss issues and present research related to ageing, including whether attitudes, social support and financial preparations in Malaysia were enough to meet the ageing population’s needs.

The answer was no.

“The middle class will age in poverty,” said Rashidi Yahya, chair of the Caregivers Association (Kendana), a group representing formal and informal care workers, to Bernama.

In other words, living longer does not mean living better.

No change

To say it was all up to the Malaysian government to solve elder poverty would not be accurate. While there are some policies that the government could implement to help, experts said it also falls on Malaysians to prepare for old age.

But that has proven to be an uphill battle.

The Retirement Strategic Agenda survey, which was released on Oct 22, found that attitudes in regards to retirement funds were very relaxed among respondents. The study was conducted by the Kumpulan Wang Persaraan (KWAP) and  Universiti Putra Malaysia (UPM) think tank for elder issues MyAgeing, and involved 6,252 pre-retirees and 1,075 pension recipients from the government sector.

Project leader Dr Rosmah Mohamed, an economist with UPM, told Bernama that one of the findings that struck her was how attitudes toward retirement have not changed from previous study on retirement preparedness. Only 19 per cent saved regularly, while 54 per cent saved occasionally, and the rest not at all.

“The last research was conducted in 2017, so seven years. But the saving behaviours are still the same,” she said, adding that basic expenses, debt repayment and children’s education were the three top reasons why respondents said they could not save regularly.

This lack of retirement awareness is reflected in other research on Malaysian workers’ attitudes regarding retirement, not just on civil servants.

An Asian Development Bank-Universiti Malaya survey published in 2023, found that almost two-thirds of Malaysians did not prioritise saving for retirement, with 26 per cent saying they expect to work until they die.

While pensions are usually reserved for civil servants, those in the private sector and non-pensionable employees in the public sector prepare for their retirement via EPF. The fund pays a guaranteed dividend of at least 2.5 per cent annually on each customer’s savings.

Due to the pandemic, over 90 per cent of EPF members under the age of 30 do not have enough savings to meet the RM240,000 target by 55, according to the Khazanah Research Institute report Households and the Pandemic 2019-2022: The State of Households 2024.

The study also found that over 52 per cent of EPF members under the age of 55 have savings of less than RM10,000 and over 25 per cent under 55 have a savings of less than RM1,000.

However, the pandemic just exacerbated what was already there. A Bank Negara survey in 2017 found that only 40 per cent of Malaysians were financially ready for retirement, and that more than 75 per cent found it challenging to save RM1,000 for emergency needs.

Confidently wrong?

Despite the dire numbers and what they augur for the future, Rosmah said most respondents in the KWAP study were not worried. The finding echoed a 2013 survey by HSBC on Malaysians’ attitudes on retirement.

“(The civil servants) don’t care much about saving because they are confident about receiving their pension,” which is not necessarily a good thing, she said.

EPF members also have the same attitude, according to a study done by Park and Estrada in 2012, which found that the availability of the forced savings mechanism in the public pension scheme and the EPF is one reason why Malaysians found no urgent need to prepare for retirement.

This confidence worries experts, as many do not seem to realise how expensive growing old will be. Many pre-retirees also think their adult children would be able to help shore up any savings shortfall to take care of them in their old age, without considering their children’s need to save for their own retirement.

Rosmah said even though culturally, Malaysians are expected to care for their parents, it was not smart to bank on the expectation.

“We all say that our kids should support us but actually no. We can’t have that kind of thinking. Assume we don’t have kids, or they can’t help so we have to prepare ourselves,” she said.

Assoc Prof Dr Rahimah Ibrahim, director of MyAgeing, agreed, saying families and adult children cannot always provide the medical or financial assistance the elderly need.

“Most people are caught off-guard when someone in their family becomes frail and sick. And suddenly they become the caregiver. It hits them hard because there’s no emergency money stashed away for long-term care,” she said.

“It’s going to be a huge burden on the families.”

For one thing, elderly people have a higher risk of injury. One fall can cost thousands of ringgit, and affect their mobility. It requires more to take care of them. If the elderly person has dementia, then the risk of fall is even higher, as well as the financial and care burden. On top of that, adult children seldom have the medical training to care for their parents’ needs, which can worsen their condition.

Many adult children, majority of them women, will also leave the workforce in order to care for their ailing parents. That reduces the household income, although the unpaid care work in Malaysian homes is worth about RM379 billion, according to the Institute of Strategic and International Studies (ISIS).

The government has several measures to ease families’ burden, such as grants to retrofit homes to make them safer for their elderly parents, among others.

“If they feel they need it, our staff will go and check whether they truly qualify to receive the allowance. So far, if I’m not mistaken, I checked that we have allocated RM1.3 billion for all those receiving assistance. This is not just for the elderly, but overall,” Datuk Seri Nancy Shukri, Minister of Women, Family and Community Development told Bernama on the sidelines of the 2024 NCA.

The Local Government and Housing Ministry told Bernama, it is also trying to increase the number of care centres available, utilising sound but empty buildings, if needs be.

“The main challenge identified (from our engagement session with care operators) is the difficulty faced by childcare centre operators in renewing the limited planning permission (KMTT) from the local authorities (PBT) due to complaints from their neighbours,” it added, responding to Bernama queries via email.

Other government initiatives include tax relief for adult children caring for their parents, expanding it to include eldercare, equipment and medication,in the 2025 Budget.

The government has also increased EPF coverage to self-employed people, homemakers, and informal workers. However, contributions are voluntary and withdrawals allowed, making EPF more like a savings account than a long-term investment account.

But how the government determines who gets the assistance may be faulty.

MyAgeing senior researcher Chai Sen Tyng said it boils down to how the government calculated need, basing it only on income, without taking the size and needs of the household into account.

“When you apply for aid, they say your household income must be below RM1,000. But what if my household has four people and another household has 10 people? Should I still use the same cut-off of RM1,000 for household income?” he said, adding that Welfare Department staff have not been updated on these nuances.

In the end, he said older people with a pension but who live alone may receive more financial assistance than an older person living with their family, even though there is less to go around due to the big household size.

Not ready

Malaysia is mulling the abolishment of the civil servant pension scheme as the government has had to spend billions paying out pensions for civil servants. Last year, pension payments amounted to RM31 billion. The government announced it would have to spend an estimated RM120 billlion in 2040 if the trend continued.

Experts are mixed on abolishing the pension system and requiring everyone to depend on EPF for retirement. Rosmah disagreed with the proposed abolishment, saying Malaysians were not financially literate or aware enough about retirement yet.

“It’s dangerous because they will receive a lump sum of money, and you know how our people are. Those in the private sector, when they get such a large amount of money, of course, they will spend it, and in the end, how much will be left?” she said.

She added the KWAP study recommended stepping up financial education for the masses.

Other than that, the experts also want changes to the EPF, such as prohibiting full withdrawal at the age of 55 unless absolutely necessary.

Rashidi from Kendana said EPF should provide a monthly stipend to members instead, similar to the government pension scheme.

“If we are looking at ageing overall, we should also (require) people to open an EPF account after a certain age,” he added.

Another is long-term insurance, which could provide for the elderly person’s nursing and care needs. However, experts say there is little appetite to introduce this in Malaysia, without government intervention.

The KWAP study also listed pre-retirees’ plans for retirement. Some prefer to continue working, while others wanted to spend more time on religion, with family or on leisure.

But to achieve these dreams, you need money. Rosmah said this is why she is stressing the importance of saving up now, especially for those whose basic income is low.

“On top of EPF or pension – I think to ensure that you have better retirement, you need to have private savings,” she said

‘It doesn’t matter if it’s Tabung Haji, or ASNB (Amanah Saham Nasional Berhad), as long as you can use that extra money.” — Bernama