Consider This: Can EPF Work Like a Pension? (Part 1)

AWANI

The government is proposing a major restructuring of the Employees Provident Fund under the 13th Malaysia Plan. The idea is to split EPF into two components: flexible savings, which can be withdrawn anytime, and retirement savings, which will be paid out regularly until depleted. It's a bold move aimed at strengthening old-age income security, as Malaysia prepares to become an aged nation. But can a new hybrid model safeguard retirement income for the long term without overriding the rights of contributors who’ve saved throughout their working lives? On this episode of #ConsiderThis Melisa Idris speaks with Chai Sen Tyng, Senior Research Officer at UPM’s Malaysian Research Institute on Ageing (MyAgeing).

Transcript

00:00hello and good evening i'm melissa idris welcome to consider this this is the show

00:15where we want you to consider and then reconsider what you know of the news of the day the government

00:20is proposing a major restructuring of the epf under the 13th malaysia plan the idea is to split

00:27epf into two components one flexible savings which can be withdrawn at any time um and two

00:35the income savings portion which will be paid out regularly until depleted now while this is still

00:41an idea under consideration it is a bold move aimed at strengthening old age income security

00:48as malaysia prepares to become an aged nation but can this new hybrid model deliver a retirement

00:55system that is fair and sustainable and the biggest question is will malaysians be open

01:00to such a reform joining me on the show is chai senting who is a senior research officer at upm's

01:07malaysian research institute on aging better known as my aging chai thanks so much for being back on

01:13the show with me today what did you make of the proposed um dual component epf structure that

01:19splits contributions into retirement savings and kind of a pension style payout is this a sound

01:25direction for reform in your opinion hi melissa i think it's long overdue would be the right word

01:33um and i think that we we should have this conversation a long long time ago i i believe

01:38there were some movements towards this idea 10 years ago but it was quickly shot down because there

01:45wasn't any appetite for it but i think it's good to take note of the term that is being used one is a

01:53retirement savings same old same old and the other one is retirement pensions and the choice of the

01:59word pension here is really pretty exciting for us because we know for many years that a lump sum payout

02:06is not sustainable but i believe that perhaps uh the correct way to view it is that it might not be a

02:14different account right from the offset maybe everything else remains the same but perhaps at the age of 55

02:21you know the withdrawal age there is going to be some kind of a minimum sum or minimum balance

02:28or a basic amount that is going to be kept or left behind for it to be converted into some kind of a

02:36pension payout another key missing ingredient is whether there will be a longevity risk or guarantee of

02:45sorts that uh the pension amount would last for a lifetime i think that's the the key pieces of this

02:53major announcement that we are all waiting for okay i i just want you to maybe help clarify something so

03:01what is the difference between stretching out someone's savings and building a system that is reliable

03:10and um offers some kind of lifelong income you talked about longevity risk or like longevity

03:16guarantee i'm wondering how the idea of um some sort of risk pooling or even income redistribution

03:23mechanisms might offer i don't know some form of guarantee for um the whole the life cycle given that

03:31this is what is central to a real pension system isn't it correct correct in in social protection circles

03:38we we use the term a pension replacement rate a pension replacement rate essentially is how much of

03:45your income after your working life you know your decumulation phase replaces your current income

03:54that's an ideal uh situation very rarely you can provide a proper uh pension replacement rate but

04:01what's happening with uh india singapore even malaysia where we share the same roots of provident fund

04:09system is that the other countries have moved to a pension like payout i use the word pension like

04:15you know in that sense because singapore cpf life when it started in 2009 uh it is maybe for like 15 20

04:23years uh it's like annuity program but uh they tinkered with it in 2014 15 and 16 and now cpf life is

04:33guaranteed by the singapore government to last a lifetime so you set aside an amount when uh your

04:40withdrawal age is reached and then that amount is converted into a uh a pension payout but what happens

04:49to your money and this is where the the beauty of the singaporean solution uh is you know we were just

04:54talking about this recently and i was saying that oh if we leave behind a minimum sum that money can no

05:01longer exist in a individual account arrangement because the money is going to be pulled with the rest

05:08of the pensions and um some people live longer some people live shorter so there will be some mechanism

05:14to autocorrect within the funds but what cpf live did was was even more uh i would say they really

05:23listened to the feedback of the people back then and they say that i will only risk pool the dividend

05:30portion the interest generated from the premium that you left behind for the monthly pension and i was like

05:39you know and i was like thinking all this wow how other people's uh retirement programs are being

05:46improved you know and evolved over the the years and over here in malaysia hardly anything but just

05:52for for the longest of time that's why we keep saying there's long overdue not because

05:57uh we don't have examples of solutions it's just that people don't like changes and uh the government or

06:04any government takes a huge risk in uh introducing pension reforms even if it is to make it more

06:10sustainable or fairer uh to all the contributors yeah well that's absolutely right and i think maybe

06:17that's where an understanding of behavioral economics comes into play here i mean even the best

06:21designed pension systems can fail if people don't trust them or don't want to use uh take that option

06:28how do you see this happening this is a clear policy dilemma for governments and epf how do um

06:35how do authorities or policy makers think about safeguarding retirement for the long term without

06:41overriding um the rights of the contributors who have saved throughout their lifetimes and may want

06:46that lump sum withdrawal i mean is there a way to design a system that that honors both yeah i i think

06:54this is the key compromise here uh on one hand you you need that government guarantee to say that if

07:01it is a pension then it should last forever right i mean but we can argue and debate about the amount

07:08uh we can also argue and debate about what should be the minimum sum left behind um but i would say that

07:15the real trick here is to actually help people understand that you are still going to get your lump sum

07:22withdrawal but if you don't save enough then you won't qualify for the pension at all we are

07:30looking at it from a different angle most people will feel that oh they are trying to lock my money

07:36up for another i don't know 15 20 years right but i think we have to help the people understand that

07:42this is actually a privilege if you have insufficient savings let's say lower than 150 000 let's say the

07:49threshold is 150 000 let's say you have less than that then perhaps you can just withdraw everything

07:56and take home with you because the pension benefit cannot be extended to you simply because there's

08:01insufficient density of savings so we have uh what we call a social welfare cash assistance program

08:10which is valued at about 600 ringgit a month so if the uh guaranteed pension minimum pension approach

08:19is less than a thousand ringgit for example then there's no point that we try and convert it into

08:25a monthly payout sum so the correct approach here is to help everyone understand that if we set the goal

08:33at 150 000 or 300 000 we can variate it easily because the guaranteed sum will be correspondingly

08:41lower so you can still have your lump sum amount that you if you have excess and you can do what you

08:47will with it but what we are trying to guarantee here that you don't lose everything uh if you spend

08:52it early depletions or whatever other risks that people have talked about all right okay so the there

08:58were other interesting things in rmk 13 that i wanted to talk to you about uh what were the

09:04initiatives that were related to aging and older persons in the 13th malaysia plan that stood out to

09:10you chai was there anything in particular yes um i think for the 30 malaysia plan as our director has

09:17released a statement on this as is it's really historical in a way because uh for the first time the term

09:24long-term care enters the lexicon it has never been there before and um the government actually

09:32promised to establish and set up a long-term care ecosystem which involves the public private and

09:38civil society sectors so um addressing these uh major uh what we call components of an aging society

09:47head-on i think this is like a long-term commitment because they also address issues about old age

09:52employment uh they also touched on housing um lifelong learning free training so while the details are

10:01yet to be fleshed out we think that the government has correctly taken up many suggestions and ideas

10:08in the national aging blueprints so we hope that uh there will be a broader uh stakeholder engagement

10:16process to get public feedback on what is the best way for us to achieve these outcomes right okay so

10:24looking ahead so again uh rnp13 is is a five-year kind of long term medium term plan and often short on

10:31details but in the coming um budget uh 2026 and the months that follow what is it that you will be looking

10:41out for in terms of how the ideas or the vision that was presented in rnp13 will be implemented or will be executed

10:52i think it's always about moving the pieces so that like when you have a budget speech it's going to contain

10:59more short-term measures and solutions so um what we are hoping to see is that uh the government's looking at

11:06uh what we call the healthcare and long-term care uh reforms holistically similarly looking at the social

11:14protection uh reform in a holistic manner so that pension uh reforms whether civil servants or private

11:21sector workers are looked at together so that they they form a coherence uh a program and narrative so

11:28that there are no gaps in between so i i think uh in the upcoming uh budget speech and as well as the

11:36years to come we will see how the government fine-tune some of these goals and visions and they will

11:43operationalize them in in time in due course but uh i i believe that um we are already seeing some early

11:50signs of this because in the last budget speech the government has already announced tax rebates for

11:57adult children paying for the long-term care costs of their parents uh aging parents so so it means that

12:04the government already recognized that there is has to be some kind of a structure for us to

12:08to promote a more home and community-based care so i i suppose it will come uh i know that the

12:15ministry of women is also working on a framework of sorts for the care industry so we will have quite

12:22a number of uh policies and programs coming up but again uh it's always an issue of public engagement

12:30uh talking to the industry players and working closely with them and perhaps we can even save

12:36some money public funds especially if we work closely with the uh industry players uh in terms of

12:43what we call uh regulatory structures so you know the industry can self-regulate as well so i think we

12:50we have to explore all avenues considering our current fiscal position so that it does not make it a costly

12:56affair wonderful chai thank you so much for speaking with me i appreciate your time chai something

13:01there from my aging at upm we're going to take a quick break here and consider this we'll be back with

13:07more stay tuned

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