Not too long ago, “retirement” was a good word.
It was a positive word. It was the word everyone was looking forward to associate with their lives. A word that when spoken, has people hearing the words “freedom”, “accomplishment”, “liberation” --instead of the actual word.
But today, the association is not quite that positive anymore. Not in Malaysia at least.
The EPF says a person must have RM228,000 of retirement savings by age 55. But as of 2015, two-thirds of EPF members aged 54 have RM50,000 or less
Last year was the first time we heard the notion that Malaysians don’t have enough savings after they retire. Some time has passed since, and the veracity of that claim has unfortunately only grown.
In August 2016, the statement was given a concrete, albeit unwelcome vindication by the nation’s top research firm, Khazanah Research Institute. Its Managing Director, Datuk Charon Mokhzani laid it bare.
“There is a concern that many will not have saved enough for a 20-year retirement and are taking on too much debt,” he said.
Charon went on to present a report by KRI that found that the average life expectancy of Malaysians has increased to 77.4 years for women and 72.5 years for men, and household savings was only 1.4% of adjusted disposable income.
Fast forward about a year, and the numbers haven’t taken a turn for the better. The Employees Provident Fund (EPF) says a person must have RM228,000 of retirement savings by age 55. But as of 2015, two-thirds of EPF members aged 54 have RM50,000 or less. This amount it says, is likely to be used up within five years of retirement.
So a week ago, when I met with EPF CEO Datuk Shahril Ridza Ridzuan for an interview, I decided to start with just that topic.
“Today as it is, in terms of retirement benefits, we don’t adequately cover everyone in the country,” Shahril calmly confirms – somewhat incompatible with the nature of the topic in question.
He says Malaysia has a total working population of approximately 22 million people, but the EPF only actively covers about 6 million people and the government, through the pension system, another 1.7 million.
“I think as a society we need to take a look at that and try to understand what else we can do better,” he adds.
I decided to go straight to the point, and ask him whether there’s any viable solution. Maybe because I’ve heard enough about the problem for the past two years, but not so about the solution.
He says there is a solution, but it would perhaps be considered extreme for a country like Malaysia.
“We can maybe look at a certain minimum pension for everyone, irrespective of their contribution.
“The Western European model has a fairly significant amount of state benefits paid by the government towards their citizens. Like for instance, a common old age pension where when everybody reaches a certain age, they receive a certain monthly amount from the state,” says Shahril.
But he says, if that were to happen, the money has to come from somewhere.
The pressure on us is not so much on influencing the growth of the country, it’s really about being able to identify, invest and partner with our management and entrepreneurs who can make a difference for Malaysia - Shahril Ridza Ridzuan
“It’s workable, but it has a very high tax burden,” he says, adding that we may have to increase the income tax, corporate tax, or GST to fund such a policy.
It’s just one of the many issues facing Shahril, who took over EPF in 2013 and is now more determined than ever to take it to new heights. The year he took over, the fund’s investment assets totaled RM586.7 billion. As of the third quarter of 2017, it had grown to RM771.2 billion.
That had made the EPF the world's seventh largest sovereign pension fund in terms of total assets. And given its size and stature in the age of a challenging global economy, I ask Shahril whether EPF feels the pressure to take on a more proactive role in driving the country’s economic growth.
“Yes the pressure is there. But the pressure on us is not so much on influencing the growth of the country, it’s really about being able to identify, invest and partner with our management and entrepreneurs who can make a difference for Malaysia.
“At the end of the day the country’s economic growth depends on the spirit of the entrepreneurs who fuel the business of the country. Investment bodies like us, Khazanah, PNB and KWAP, we have to identify and back the entrepreneurs of Malaysia.
“At the end of the day they are the ones who bring in profit necessary for us to pay the dividends to our members,” he said.
Watch the full interview with EPF CEO Datuk Shahril Ridza Ridzuan below for the full dialogue. Also on the menu is Bitcoin, his advice for young professionals and the most important thing he learned in 2017