- short term solution

Beginning 1 January 2009, the 5.5 million active contributors to the Employees Provident Fund (EPF) can opt for a voluntary 8% contribution instead of the current mandatory 11%. The reduction will be effective for two years. If all contributors choose to reduce their contributions, the 3% reduction would amount to RM4.8 billion.

It is estimated that a 35-year old with a monthly salary of RM3,000, would be able to take home an extra RM90 in his monthly pay packet. An employee earning RM5,000 per month, will take home an extra RM150. However, although it is only for a 2 year-period, an employee who opts for the reduction, actually loses out at the end, as computed by financial analysts.


Firstly, he will lose out on compound interest. Assuming that a 5% dividend is paid out annually by the EPF with the compound element over a period of 20 years until he turns 55, he will be RM5,500 poorer when he retires. And if his monthly income for the next two years is RM5,000, he would lose out on a total savings of RM9,200 in his EPF upon his retirement.

Secondly, with the reduction of EPF contribution, he will declare more income in his tax return that is taxable and may fall into a higher income tax bracket.

The above measure is supposed to help Malaysians tide the rise in prices of goods and services, brought about by the current global financial crisis. It is intended to stipulate our economy so that we would not be fallen into a recession. ‘The spill over effect of this is that financial markets and stocks can stabilize, so massive wealth destruction can be stopped’ says an economist!. But, newspapers published in recent weeks paint a different picture of the state of our economy. It was reported that our economy is still healthy, resilient and insulated against the possibility of a recession. Our banks are still lending. Price of crude oil has retreated to below USD65 in recent weeks.

The EPF has raised concerns about Malaysians not having enough savings to see them through 20 years past retirement, much less lead a comfortable life. In a study by the EPF last year, the average contributor has only RM106,000 in his savings while one would need a projected sum of about RM747,000 (taking inflation into consideration) if one were to live for 25 years after retirement. How many Malaysians have pension funds? So, is there really a need to reduce EPF contribution?

To the contrary, something needs to be done to cater for our growing aging population. Prices of essential goods and services keep on increasing by more than the inflation rate. We do not have a free health care system. Young people of today have different lifestyles and expectations. Already burdened with low incomes, it is difficult for them to look after themselves and their immediate families. It would be pressure and challenge for all; the wage earners, the government and society at large.