CONCEIVABLY, it is a clever scheme to attract the attention of retirees when the Employees Provident Fund (EPF) comes up with a ruling that allows contributors to keep their money with the fund until the age of 100.
However, after careful scrutiny, what comes to mind is such a ruling would not be necessary for the majority of contributors – unless they view their savings in the EPF as an “inheritance” to be passed on to the next generation instead of money saved to be used in their retirement.
The argument for continuing the EPF contribution beyond the official retirement age of 60 is that life expectancy has improved and the older generation need steady cash-flow as they ease into old age.
Yes, life expectancy has improved. The average Malaysian life expectancy is 75 years old now.
However, how many live up to the ripe old age of 100?
If one survives, at that age most of the needs would be related to medical care. Moreover, at that age, many would want to spend their time in an environment where they are comfortable and together with their loved ones. They do need some money for that purpose.
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Therefore, money kept in the EPF is money to be used in retirement. Technically, it should be drawn down gradually.
Hence comes the question: Should the EPF continue to accept contributions from those well beyond the retirement age of 60?
According to the EPF’s annual report, out of its 6.79 million active members, some 147,168 are above the age of 60. By being active members means that they continue to contribute to the fund at least once a year.
Breaking down the figures further gives an interesting perspective of how some members probably view their savings in the EPF as an “inheritance” to be passed on to the next generation instead of utilising the money in their retirement.
The EPF has 11,100 active members who are above 70 years old and they have some RM1.75bil in savings. Of that number, 118 are above the age of 80. Breaking it down even further reveals that the EPF has 31 active members above the age of 85.
One wonders what motivates one to continue contributing to the EPF after the age of 60.
According to the EPF, members should have at least RM196,800 when they reach their retirement age to get a monthly return of RM820 per month for the next 20 years, which is until 80.
The total amount that the 31 active members who are above 80 have in the EPF in savings is RM5.98mil. This works out to almost RM192,000 per person, falling short of the RM196,800 mark.
However, why would someone continue to contribute after the age of 80? They can always draw down on their savings, unless the person thinks that he or she would live for another 20 years.
In all probability, most of the active members above 65 are self-employed or work in family-owned companies. They probably have some extra income and would rather want to leave their retirement savings in the EPF instead of any bank.
The EPF is the safest and cheapest fund manager in town that has been consistently giving out a dividend of 6% when banks only offer half of that. Furthermore, if the money is invested in unit trusts or any other schemes, there is a high probability that the value would erode.
There is nothing wrong with placing money with the EPF after 60. However, the EPF in essence is a retirement scheme. It’s not designed to place money for the next generation.
There are some corporate tycoons who are well beyond the age of 60 having several millions in the EPF that earns a return of 6%. The reason why they don’t withdraw their money is because of the splendid returns.
Considering that the EPF receives more money than withdrawals, it should not need the extra contribution from the “super rich”.
The size of the EPF now stands at RM684bil and is likely to hit RM700bil in three years’ time. It should be able to do without contributions, especially from those above the age of 70.
However, a compelling question is that would there be an impact on the returns to the average contributor who has less than RM200,000 by the select few holding millions? Simply put, would the average contributor get more in terms of dividends if the savings of the super rich were to be capped at a certain size?
In principle, it should not because the returns are uniform to all. But considering that the EPF has all the information in the portfolio of the contributors, it would have an idea to the answer above.
The rules currently are such that anybody can contribute to the EPF. In fact, a contributor can put in an additional RM60,000 per annum to his or her compulsory savings.
However, one wonders if this works with the objective of the EPF being a retirement fund, where members ideally should start drawing down their savings gradually in their years after retirement.
It is not a place to save for the next generation. This is the view held by some members obviously.
Source: http://www.thestar.com.my/business/business-news/2016/06/04/why-all-the-brouhaha-over-the-epfs-new-policy/
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