Lump sum EPF payout scheme for retirees not feasible, says economist

New Straits Times

12 hours ago

KUALA LUMPUR: Putrajaya may encounter a hurdle if it implements a payout scheme to provide lump-sum access and regular income to retirees via the Employees Provident Fund (EPF).
Economist Dr Geoffrey Williams said that most Malaysians have low savings and low income, which may halt the government's plan due to the lack of funds.
"The real problem is coverage. Currently, EPF only has 8.8 million active members, and these have very low savings.
"So, even with the new scheme, there is still a pensions adequacy crisis. Millions have no retirement scheme, and those that do have savings are too low to be meaningful," he said.
Williams added that pension adequacy cannot be addressed quickly because it requires retirees to have higher savings.
"With incomes being low, higher savings are not possible, and actually, people are already working beyond the official retirement age anyway," he said.
He suggested that the government establish a non-contributory pensions scheme to top-up the existing funds.
He said that the non-contributory pension could be funded by current spending, taxes, a "superfund", or a combination of all of these measures to top up whatever savings people already have.
Under the 13th Malaysia Plan (13MP), the government is considering implementing a monthly pension scheme under the EPF as part of its efforts to ensure a steady income after retirement.
In a Facebook post, Deputy Finance Minister Lim Hui Ying yesterday said that the proposed new structure will split the savings into two accounts — a Flexible Savings account, allowing members to withdraw anytime, and an Income Savings account, a periodic payment until funds are exhausted.
However, she said that the proposed changes will not affect existing withdrawal rights of current members and will only apply to new members after it is implemented.
Currently, there are three funds under every member's name — Account 1, which are meant to be a retirement fund, Account 2 for selected pre-retirement needs, and Account 3, which was only implemented last year for flexible withdrawals.
Meanwhile, the Malaysian Employers Federation objected to any compulsory pension payout mechanism under EPF and urged the government to approach the matter with great caution.
Its president, Datuk Dr Syed Hussain Syed Husman, said that the monthly pension payout model must be implemented on a voluntary opt-in basis, and not as a mandatory mechanism.
"EPF members should be allowed to choose the proportion of savings they wish to convert into a monthly payout, if any.
"A rigid, compulsory payout model may increase financial stress among retirees who need a lump-sum cash flow.
"Concerns over restricted access to retirement funds can lead to financial stress, particularly if workers need liquidity for medical emergencies, education, or caregiving responsibilities," he said.
He added that any compulsory structure may also increase the demand for salary advances, loans or early retirement which will in turn put pressure on employers and the system.
"Younger workers may begin to question the value of contributing to EPF if the system evolves into a rigid payout structure. This could reduce enthusiasm for formal sector employment, encouraging some to shift into the gig or informal economy where contributions are voluntary," he said.
He suggested that the government begin with a pilot scheme for low-income earners and conduct extensive consultations with employers, employees and retirement experts to ensure the design meets practical needs.
He added that any new model must preserve members' rights to full or partial withdrawal at retirement.
"If the government wishes to introduce a separate, government-funded pension fund for the people, especially one with government contributions, then clear conditions for withdrawal and payout structures can be designed accordingly," Syed Hussain said.