Human Resources Minister M Kulasegaran recently announced that the government is looking to review the current retirement age of 60. The announcement was made in view of findings by the Social Security Organisation, which show that 7 in 10 retirees will deplete their savings in less than two years while two in three retirees will live on RM950 a month until 75.
This indicates a need for urgent action to address the high number of retirees who are not financially prepared to see through retirement. Unfortunately, raising the mandatory retirement age will not be as effective or impactful as one might imagine. When one takes a closer look, the core reason for the lack of retirement savings is low salaries and wages.
Social safety and investment programmes, such as the Employees Provident Fund (EPF) and Amanah Saham Nasional Bhd (ASNB), were established to ensure sufficient long-term savings for retirement. However, they are currently dominated by those from the upper-income bracket. Are they then able to fulfil their primary role of acting as adequate safety or support nets for wage earners from the lower-income group?
According to the EPF’s 2016 annual report, the top 0.4% of its members collectively own RM47.2 billion in savings, more than the combined savings of the bottom 51.9% of its members, who collectively own RM43.9 billion.
Meanwhile, findings by the Khazanah Research Institute in 2015 show that one in five EPF members aged 51 to 55 (nearing retirement) have less than RM10,000 in retirement funds, with the bottom 13.5% having accumulated savings of RM5,621 on average.
The 2017 annual report of ASNB shows similar trends — the bottom 76.37% of Amanah Saham Bumiputera unit holders have an average of RM563 in their accounts while the top 0.23% have RM772,223.
Similarly, the bottom 97.85% of Amanah Saham Nasional unit holders have an average of RM211 in their accounts while the top 0.04% have an average of RM938,121. Taking into consideration that RM200,000 is the maximum investment per unit holder, the high account balances of top unit holders suggest large sums of investments and many years of dividends.
The above information demonstrates stark income inequality among our richest and poorest, where only top or higher-income earners have sufficient income to accumulate savings and investments, while lower-income earners are unable to do so. This indicates that lower-income earners do not earn sufficiently to enable them to accrue enough savings required for retirement.
Low and static wages among Malaysian workers have been repeatedly highlighted and emphasised over the past few years. The Department of Statistics Malaysia’s Salaries and Wages Survey Report 2016 shows that half of Malaysians earn less than RM2,000 a month, with the median income amounting to only RM2,000 a month. Consider the fact that the proposed minimum wage is RM1,050.
This trend is supported by the EPF data, which states that 83% of its active members earned less than RM4,000 in 2015. Lower-income households and individuals have limited capabilities in saving sufficiently for retirement.
The situation is exacerbated by the rising cost of living and household debt. Bank Negara Malaysia announced last year that the expenditure of the bottom 40% (B40) of Malaysian households had increased at a faster rate than their income.
The average B40 income level grew 5.8% annually from 2014 to 2016, compared with 6% growth in household spending during the same period. The household debt to gross domestic product among Malaysian households remained high at 89.1% in 2015, a 2.3% increase year on year.
The data indicates that low wages are significant barriers to accruing sufficient savings for retirement, especially among lower-income earners.
Increasing the number of better-paying, quality jobs would be a more effective solution than raising the retirement age. Higher salaries and wages are better catalysts in ensuring improved household savings and financial resilience, hence enabling sufficient contributions for retirement.
Job creation to meet this challenge is a tough task that requires good and vibrant business environments, adherence to strong human rights frameworks and fair regulations.
A multi-ministerial approach, led by the Ministry of Human Resources, is therefore required to plan and implement actions that support salary and wage growth among lower-income earners. Improving public goods and delivery systems, such as public transport, internet services, city planning and the provision of water and electricity, could enhance production capability and wage growth.
It is only through cumulative actions that the problem of insufficient retirement funds can be truly addressed.
As published in The Edge
As published in Free Malaysia Today