A better safety net for senior citizens

Republished from New Straits Times, Jan 22, 2020,
with the author’s permission. Read the original here.

By Yong Soo Heong

AS WE REVEL in the Lunar New Year celebrations with throaty shouts of “Gong Xi Fa Cai” or “Huat Ah” whenever we meet our friends and relatives or partake in the sumptuous yee sang salads, I can’t help but think about the not-so-fortunate who might not have the means to even celebrate.

In Pandan Indah, Kuala Lumpur, recently, I saw an old Chinese woman of more than 70 years struggling to cross the busy road. Armed with several lanterns intricately-made from ang pow packets, she had obviously employed her skills to earn a little extra.

Just the other day, I met Edwin, a 71-year-old Indian man selling curry puffs and nasi lemak in Wangsa Maju. I was gripped by what he said: “Even at this age, I try to make myself useful. I don’t want to be put in a situation where I have to beg for money. My wife makes them in our house and I come out to sell.”

We noticed many old Malay women squatting nearby drive-through restaurants, selling various kinds of snacks when they should be at home with their grandchildren. This makes you wonder why they’re still struggling to make ends meet.

Malaysian life expectancy is on the rise with males expected to live for 72.5 years and 77.4 years for females. By 2035, 15 per cent of our population would comprise people over 65 years, or about five million people. That’s just 15 years away and that’s a lot of old people.

Last year, Ringgitplus Malaysia, a financial comparison website, conducted a financial literacy survey and found that 21 per cent of Malaysians didn’t save money at all. Of this lot, 11.9 per cent didn’t save or admitted that they spent a lot on lifestyle, including shopping and entertainment.

Another 33.7 per cent revealed that their debt repayments rendered them unable to save, followed by 29.2 per cent who believed their essential expenses were too high, leaving them with too little amount to save, while the remaining 25.2 per cent saved only when there was enough at the end of the month.

Of those surveyed, 35 per cent kept less than RM500 a month, 23 per cent saved RM501 to RM1,000, 13 per cent (RM1,001 to RM2,000) while close to nine per cent said they could set aside more than RM2,000 a month. Interestingly, 89.2 per cent realised that their Employees’ Provident Fund (EPF) savings were not enough for retirement and 54.6 per cent of respondents aged 20 to 29 didn’t have a retirement plan at all.

Introduced in 1951, the EPF scheme made it compulsory for employees to contribute 11 per cent of their salaries to their EPF accounts. Employers contribute the equivalent of 13 per cent of the salaries of employees earning RM5,000 and below, and 12 per cent if salaries are more than RM5,000.

With Malaysians having enjoyed an average dividend of 6.02 per cent return for the last 10 years (2008-2017), the relatively high EPF dividend rate had given many contributors a false sense of long-lasting financial security. It’s time for a relook, seriously.

EPF statistics show that 70 per cent of its contributors who withdraw funds at 55 often use up their savings less than 10 years after retiring. But in recent years, there has been an increasing trend for contributors not withdrawing their EPF at one go.

Only 48 per cent of the labour force of 14.5 million out of a population of about 32 million have active EPF accounts, while 10 per cent work for the government and are eligible for pension. Others in the informal sector or self-employed are not covered by any retirement scheme.

EPF has suggested that the minimum savings that EPF contributors should have at age 55 is RM228,000. What’s startling is that only 18 per cent of contributors have that amount minimum savings target of RM228,000 in their account by 55. At RM228,000, this equates to a monthly withdrawal of RM950 to cover basic needs for 20 years.

In the past, many Malaysians used to depend on their children or grandchildren for incomes after they’ve retired. Some 30 years ago, the pressure on off-springs was not so intense as the burden could be spread around as they’ve usually about half a dozen siblings in a family. Now, people are living longer but have fewer children to support them.

Which brings to mind that there should be other schemes other than the EPF to provide a better safety net for senior citizens. It may be high time to look into private retirement schemes or even a lifelong income scheme for the elderly like in Singapore. In this way, retirees don’t have to outlive their savings, therefore having less reliance on family support once they build up their savings while being employed.

So, there needs to be a serious push to get more people to have better financial literacy to fend for themselves during old age. This is also where the Shared Prosperity Vision (SPV) can also evaluate into providing a wake-up call, especially for people in denial of their financial reality, or even effecting higher incomes for more Malaysians.

As Aesop, the ancient Greek storyteller used to say,”It is thrifty to prepare today for the wants of tomorrow.” Gong Xi Fa Cai!

• Datuk Yong Soo Heong is a former chief executive officer and editor-in-chief of Bernama. Read more about him here.