EPF emphasizes financial literacy

BEFORE the special Covid-19 levies, approximately 3.3 million or 22% of members of the Employee Provident Fund (EPF) were able to reach the basic savings target.

Following withdrawal plans, that number had fallen to 2.3 million, or 14.9% of all EPF members, by July 2022.

In the same period, about half or 51.7% of the 12.78 million EPF members under the age of 55 have a minimum retirement savings of less than RM10,000.

Individuals who have had to leave special schemes are those with the least savings, specifies the EPF.

Those approaching retirement age may not be able to accumulate sufficient retirement savings during their remaining working years.

Should the retirement age be further extended?

About RM145 had been withdrawn from the four special Covid-19 schemes – i-Lestari, i-Sinar, i-Citra and the one-time withdrawal of RM10,000.

Basic savings refers to the amount considered sufficient to meet participants’ basic needs for 20 years after retirement.

It is compared to the minimum pension for public sector employees, which is RM1,000 per month.

This rate of RM1,000 can only cover basic needs and is lower than the estimated minimum monthly expenditure of RM2,500 needed by an elderly person to lead a reasonable standard of living, as recommended in the Belanjawanku Guide.

This translates to an adequate savings target of around RM600,000 to last 20 years of retirement, the EPF said.

As of July 2022, only about 15.6% of active members in the 25-29 age category are able to meet basic savings; 30 to 34 years old (34.4%), 35 to 39 years old (43.6%), 40 to 44 years old (44.9%), 45 to 49 years old (41.4%) and 50 years old and over (33 .2%).

Overall, only 28.3% of active members are able to meet basic savings over the same period.

In its focus on financial literacy, EPF will focus, among other things, on:

> My Money Matters is a basic guide to financial planning that helps members understand their financial situation throughout their life cycle.

They must organize, among other things, their short and long-term savings goals, how to plan their expenses and investments while assessing the value of their assets and keeping money aside for retirement.

> The Belanjawan Guide which provides the minimum recommended level of monthly expenditure for households in Malaysia.

It is complete; to recommend the appropriate budget, it takes into account the composition of the household, the city of residence and the person’s commitments.

> One-on-one retirement counseling services provided free of charge by certified leaders to help members plan their retirement finances as well as their personal financial planning.

To promote greater savings, employees currently members of the EPF can voluntarily contribute at a rate higher than the legal rate.

Those without formal employment, and therefore not covered by EPF’s mandatory coverage, can choose to contribute to one of EPF’s voluntary savings programs – i-Saraan and Kasih Suri Keluarga Malaysia.

Under self-contribution, Malaysians are allowed to top up their EPF savings with any amount, at any time, up to a maximum of RM60,000 per year.

They can also supplement the EPF savings of their loved ones under Topper Toppee.

Malaysians should understand the importance of saving and start saving early to take advantage of compound interest.

Beginners are advised to start small if they must, and then try to increase the amount of savings each month.

Plan ahead and know your savings and retirement needs; around two-thirds of your pre-retirement income is needed to maintain your standard of living when you stop working, the EPF said.

Use the EPF Basic Savings to track your EPF savings by age, or see the Belanjawanku Guide for estimates on how much savings you should set aside monthly and how much you would need as a than an elderly person.

The Basic Savings is a predetermined amount set according to age in Account 1 to enable members to achieve a minimum savings of RM240,000 when they reach 55 years of age.

Malaysians should know what our financial goals are, the budget we have, the expenses we can sustain and the debts we currently owe, EPF said.

We must keep track of our budget and expenses for a detailed and up-to-date description of our financial situation.

We should be able to make informed financial decisions throughout our lives and understand the possible impact of those decisions. We also need to be in control of our finances, have the ability to improve our general well-being, and be able to adjust our finances during unforeseen events.

A comprehensive plan should be in place to ensure sufficient savings that can meet our financial needs during the retirement years.

Impulse buying, overspending, excessive borrowing, and insufficient savings reserves are negative habits and practices to be avoided.

In the face of rising inflation, many people struggle with more than one job not only to make ends meet, but also to save gradually.

Those who aren’t as well organized or tend to overspend will need all of this financial literacy advice; for some unfortunates, it will be a slow climb to realize even a little savings.

Those who do well can help by creating more jobs; we can consider pushing back the retirement age even further, especially for those who are heading towards retirement and who have already depleted their savings.

Yap Leng Kuen is a former editor of StarBiz. The opinions expressed here are those of the author.

Sarah J. Greer