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This article first appeared in Forum, The Edge Malaysia Weekly on July 18, 2022 - July 24, 2022

Like others across the world, the Malaysian government scrambled to put together a response to the economic fallout brought about by the spread of Covid-19. In addition to a series of direct cash transfers and financial incentive programmes, withdrawals from the Employees Provident Fund (EPF), initially seen as a one-off response to help people deal with cash flow problems, became an integral measure to deal with the economic crisis.

In total, the country has seen four rounds of withdrawals. And during each round, experts — as well as the EPF itself — warned that the measure could accelerate a retirement crisis in the country. Such concern is compounded by the fact that the current social security framework is unable to support the needs of the Malaysian population, which is predicted to become an ageing society in less than nine years.

What then, we ask, are those who will be vying for public office in the coming 15th general election (GE15) planning to do to mitigate the impending crisis? What policy ideas, if any, can we expect in their manifestos to support the life in retirement of millions of Malaysians who have depleted their savings?

The cost of EPF withdrawals

While the EPF withdrawals have been a lifeline for some citizens running short on cash, they were unprecedented measures with long-term implications. For the first three rounds of withdrawals, the Ministry of Finance (MoF) reported that more than half (58%) of EPF members under the age of 55 years old withdrew their money, amounting to RM101 billion. MoF also revealed that 70% of EPF members aged 55 and below do not have sufficient funds to retire above the poverty level. These figures are likely to have worsened after the fourth withdrawal.

On an individual level, we estimate that an average EPF member who fully utilised all four withdrawal opportunities (assuming that they withdrew the maximum amount allowed in each round) had cumulatively withdrawn anywhere between RM31,000 and RM81,000 of their retirement savings (see table).

To put these numbers into perspective, as at December 2020, the median savings of EPF members under 55 years old was RM18,785, while for those on the cusp of retirement (age group 50-54 years old), the median savings was RM39,585. Even when we take the conservative estimate (RM31,000) for cumulative withdrawal, the four withdrawals have wiped out at least 77% of an average EPF member’s savings.

Assuming that the average EPF member earns the national median salary of RM2,062, saves 10% of her monthly salary and receives employers’ contribution of 12%-13%, it would take approximately six years to replenish her retirement savings back to pre-2020 levels. For workers earning the minimum wage (RM1,500), it would take eight years. It would take even longer to replenish that savings for those who are self-employed, informal workers and other groups who are not receiving, or will no longer receive, employers’ contribution. That is precisely why withdrawals hit those earning a low pay the most: the less you earn, the longer you have to work to make up for the depleted amounts.

Similar policy dilemmas for others who also allowed early pension withdrawals

Early access to retirement savings to deal with Covid-19 is not unique to Malaysia. A number of countries have done it to cope with the economic shock brought about by the pandemic, including Australia, the US, Chile, Peru, South Africa and Portugal.

While there are variations in how the countries designed their withdrawal policies, the adverse impacts of their implementation were well forewarned by their critics, including, among others, the lack of security in old age, reduced returns from annuities from investment of the retirement funds as well as retirement inequality. Studies in some of these countries conducted in the past one or two years, explaining the consequences of depleting retirement savings prematurely, can serve as an indication of things to come in Malaysia if appropriate measures are not taken to mitigate the impact of the EPF withdrawals.

In Australia, where two rounds of superannuation withdrawals of up to A$20,000 were approved by the federal government in 2020, a study found that most of those who made a withdrawal thought about the decision for less than a week and did not fully understand the long-term consequences of their choice. The fault lies in a very low-friction withdrawal process (similar to Malaysia’s), which reduced the physical and mental load of making an application, leading to a massive shift in people’s mindset regarding access to their retirement savings — what used to be almost unthinkable now enjoys the government’s endorsement. If scenes of political leaders pushing and claiming credit for the approval of the latest round of the EPF withdrawal in Malaysia were anything to go by, the country’s policymakers have their work cut out to address any signs of the normalisation of dipping into retirement funds to deal with future crises.

Meanwhile, in Chile, where the government has allowed three early pension withdrawals, researchers estimate that for a 10% release, each dollar prematurely withdrawn brings losses of 1.59 dollars in future retirement savings and reduces monthly pension benefits by 7.26%. They argue that early access raises income inadequacy and inequality in retirement, and that government expenditure will have to be increased to counteract these effects for retirees. In Malaysia, similar concerns arise as B40 and M40 groups have a higher rate of withdrawals compared with the T20 group, which means that the former’s post-retirement financial well-being is at a greater risk than the latter’s.

Time to anticipate and mitigate

We have discussed above, drawing lessons from elsewhere, some of the potential consequences of the early EPF withdrawals for Malaysia. There will no doubt be more, and so we believe that now is the time to convene a serious conversation about the measures that can be taken to mitigate them. And we believe that since GE15 is just around the corner, the conversation should be driven by those who will be seeking to govern the country.

To contribute to (and perhaps to help kick-start) their deliberations, we offer five broad recommendations as food for thought:

Recommendation 1: Adapting to an ageing workforce

As we transition to an ageing society, consider ways to incentivise and support workers to extend their working lives. This may include phased retirement arrangements, flexible retirement rather than a strictly chronological one, and a framework for healthy pathways to retirement (HPTR). It is crucial that these policy instruments not only facilitate longer working lives, but also benefit people’s life in retirement when it eventually comes.

Recommendation 2: Streng­thening the country’s social protection framework

To ensure that all Malaysians will be protected from future economic shocks, political parties ought to work towards proposing measures to expand social protection in the country. This means investment in social infrastructure and services, including care services, elderly housing, healthcare and career support to create age-friendly societies. We also need to broaden coverage to those who are self-employed and in informal work.

Recommendation 3: Close monitoring of the impact of early withdrawals

Political parties ought to propose mechanisms to monitor and assess the long-term impacts of the depletion of retirement savings. For example, there should be studies on whether participants who withdrew their savings have subsequently begun to replenish their retirement accounts, and longitudinal monitoring of the financial well-being of EPF members below a certain minimum amount of savings. The government, through the Social Protection Council (MySPC), would be wise to collaborate with academics, think tanks and researchers to conduct a series of studies on this. Funding, grants, and access to databases such as PDPS (Pangkalan Data Perlindungan Sosial) and EPF memberships would be welcome to meet this objective.

Recommendation 4: Incentivising gradual disbursement of retirement savings

Alongside safeguarding the people’s savings from being further used for purposes other than their retirement, parties can consider advocating for a more gradual disbursement of retirement savings, though the mechanism needs to be fair to EPF members. Given that 71% of members aged 55-60 opt for lump-sum withdrawals of their pension savings upon retirement and 50% exhaust their savings within five years, it might be timely to incentivise staggered withdrawals.

Recommendation 5: Promoting a social pension for those most in need

In contrast to EPF, which is a private retirement scheme based on defined contribution, social pensions are flat rate benefits (which can be targeted or universal) financed out of general revenues. Parties can use this instrument to reduce poverty and secure a minimum income for the elderly. One way to do this in Malaysia is to greatly expand the coverage of the existing Bantuan Warga Emas, which provides a monthly cash payment of RM500 to the elderly who are living below the poverty line. Social pensions have been demonstrated to be effective in reducing poverty and improving health among older people in China, Vietnam and the Philippines.

Concluding thoughts

As only 3% of its members can afford to retire, according to EPF, there is a great deal of uncertainty affecting the long-term financial security of Malaysians in retirement. Understanding the root causes of disparities in retirement savings and retirement security is important in order to design policies for the future. We believe that demonstrating such understanding and offering such policy ideas will propel those aspiring to get elected to the forefront of the country’s political discourse in the run-up to GE15.

Dr Khairil Ahmad and Ooi Kok Hin are researchers at The Centre (, a centrist think tank based in Kuala Lumpur

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