WHILE it is important to set aside a portion of your income for your golden age, many find it hard to decide where to put their hard-earned money. Employees are often choosy and sceptical in selecting the right financial instruments to invest in, other than keeping their money in the bank.
It is not often that one can rely on one’s EPF savings alone to sustain oneself through one’s retirement age.
Malaysian Employer Federation (MEF) executive chairmanShamsuddin Bardan says it is not because people are not contributing enough to the EPF, but instead, it is the leakages in the system that limits its full purpose.
“Based on statistics, more than 75% of retirees reaching the age of 55 have less than RM50,000 in their EPF savings. Obviously that amount will not carry the employee through for the remainder of their life,” he says.
Cumulatively, both employer and employee contribution would amount to between 23% and 24% of wages being contributed to the EPF on a monthly basis. “A lot of withdrawals are allowed on education, medical, housing loan, and so on. Obviously when one reaches one’s retirement age, the money is not there anymore. In fact, it is very much reduced,” says Shamsuddin.
The Government needs to look into putting the EPF savings back on track, he says.
“It should not be utilised for anything else except for “old age” purposes. Perhaps if you want to buy a house, you would have to use other means. This is so your savings will be intact. Then, at retirement age, you would have enough to carry you through,” he says.
The new retirement age policy allows employees to continue working until the age of 60, compared with 55 previously. This represents an additional five years of contribution to EPFsavings.
“That would beef up employees’ savings,” he says.
However, one can withdraw one’s entire EPF savings when one reaches the age of 55. This is not in sync with the new retirement age. If an employee works until the age of 60, but fully withdraws his EPF savings at the age of 55, by retirement time he would be left with only five years of contribution.
Shamsuddin says this misalignment is yet another issue the Government needs to look into. “Although it won’t be a popular thing for the Government to change the withdrawal policy to age 60, we need to have a hard look at that, and perhaps bite the bullet and change it. Or else, the increase in retirement age with the main purpose of enhancing retirement savings would not be achieved,” he says.
Although many financial planners and industry experts think the PRS is a positive step in encouraging retirement savings, it is not without issues. Shamsuddin says more can be done to make it more attractive and viable. The PRS offers an incentive in the form of a RM3,000 tax relief. He believes the amount in tax relief will stop people from contributing more than RM3,000 to the PRS.
“I don’t think people would go beyond that on a yearly basis. Over 10 years, it will only amount to RM30,000,” he says. His suggestion is for the Government to either increase the tax relief amount or to not limit it to any amount at all.
Private Pension Administrator Malaysia chief executive officer Datuk Steve Ong says the scheme will be tweaked when necessary, seeing as the role of the PPA is to conduct research and make recommendations to enhance the scheme for members.
“As with anything new, it takes time,” he says.
Also, the PRS does not have a guarantee on the capital sum invested, nor does it guarantee any dividends. “Even in a bad economy, the Government has guaranteed 2.5% in dividends to EPF contributors,” Shamsuddin says.
Without any protection on investors’ capital sum, the PRS seems like any other unit trust fund.
Standard Financial Planner Sdn Bhd’s Jeremy Tan believes the introduction of the PRS is timely to self-employed individuals or those that are already contributing to their EPF.
“It’s a good alternative to the EPF. But it also depends on how the funds under the scheme is performing. The returns could be higher or even lower than that of the EPF.”
MyFP Services SdnBhd managing director Robert Foo believes that Malaysia is off to a good start with the introduction of the PRS, but adds that more can be done to improve on it.
“I think introducing the PRS is a good start but I believe it doesn’t have enough meat to make it attractive. The investment options under the PRS are not new, as they are already available under a unit trust fund.
“So the question is, what more can the PRS bring to the table?”
Foo adds that the PRS has a cost element to it in the form of commissions.
“This is not much different in comparison with unit trusts,” he says.
It should be noted that an individual can claim an aggregate amount of payment of deferred annuity or contribution to the PRS, or both, up to a maximum of RM3,000 for a year.
“If you are in the maximum tax bracket of 26%, that’s a savings of RM780 annually. In terms of savings for retirement, it’s not really a lot,” he says.
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