KUALA LUMPUR, August 19 – The Covid-19 pandemic has disrupted Malaysia’s economy, leaving over 800,000 people jobless last May when businesses went under, while surviving workers received pay cuts.
Many Malaysians who commute to Singapore as well as other countries for work suffer an uncertain future, as the border between both countries remain shut.
People opted to withdraw their savings to make ends meet. But while these withdrawals may have helped solve their current predicament, it may cause bigger problems in the future, particularly post-retirement.
Malaysia, An Ageing Population
Retirees are one of the most vital groups to Malaysia’s dynamics as the country is witnessing an increase in its ageing population. According to Department of Statistics Malaysia data, those aged 65 years or older are expected to make up more than seven per cent of the population this year.
“It is estimated that by 2044, there may be 14 per cent of population in this age group, making Malaysia an aged society,” Financial Planning Association Malaysia (FPAM) CEO Linnet Lee told CodeBlue.
But at the same time, the Covid-19 impact has seen the unemployment rate shoot up in May this year to 5.3 per cent, a staggering increase from 3.3 per cent recorded during the same time last year. The World Bank Group also said that Malaysia’s bottom 40 per cent (B40) population is still struggling to survive these impacts, describing their vulnerability to economic shocks, a rise in the cost of living, and mounting financial obligations.
The government recently raised the national poverty line income from RM980 monthly household income to RM2,208. Minister in the Prime Minister’s Department Mustapa Mohamed said this meant the 2019 national poverty rate was 5.6 per cent, or 405,441 households. Malaysia’s 2016 poverty rate was 0.4 per cent (24,700 households), based on the then-poverty line income of RM980, but it would be 7.6 per cent (525,743 households) based on the new RM2,208 poverty line income.
Putting all these together, including the fact that the banks’ six-month loan moratorium is soon coming to an end, it does paint a bleak picture for many Malaysians trying to save up for retirement.
But as an ageing society, those in the workforce — particularly the ones hit hard by Covid-19 restrictions — have a daunting responsibility of saving up for their retirement; not only for a financially independent life post-retirement, but also for medical purposes.
“Based on the statistics above, everyone has to start planning, saving and investing for our own retirement from the perspective of income, health, protection and long-term care,” Lee said.
But what about sick retirees who are financially unsound or who do not have retirement savings for any health ailments?
“There are currently 10 government-run homes for the aged and the entry criteria requires one to have no source of income, own residence nor relations to depend on.
“However, the family who has an aged parent, both spouses working and children in school will face the prospect of sending the parent to either a day-care facility or a home. This is why most families prefer to hire a maid instead if their budget permits,” Lee explained.
Retirement Savings Are Not Your Emergency Funds
These experts have urged Malaysians not to touch their retirement savings, even during the Covid-19 outbreak that has led to job losses and pay cuts, as they pointed out that medical costs rise with age.
They said withdrawals from any retirement fund — be it the Employees Provident Fund (EPF), Amanah Saham Bumiputera (ASB), or other private retirement schemes — prior to retirement should be treated as a final option, as a retirement fund must be kept separate from one’s emergency savings.
RinggitPlus quoted financial experts as saying that an emergency fund should start off with at least three to six months’ of one’s monthly expenses, with a 12-month reserve the safest.
Suraya Zainuddin, a financial planning advisor who runs a blog, Ringgit Oh Ringgit, said retirement savings earned reasonably high returns, with a secure capital amount compared to withdrawing it for other riskier investments.
“My personal take is one shouldn’t touch their retirement-earmarked funds unless absolutely necessary, where one’s health and safety is compromised,” Suraya told CodeBlue.
“Yes, retirees, especially those who live on their fixed deposit interest are very concerned about the returns on their retirement savings. Many are actively looking for alternatives. Of most concern is that they may fall prey to scams in their quest for higher returns. This is a vulnerable group which regulators are looking out for,” she added.
i-Lestari is a fund withdrawal scheme from a person’s second account in EPF. The withdrawal amounts from RM50 to RM500 per month, and is valid for monthly withdrawal until March 31, 2021. The scheme is intended to ease the financial burden of EPF members to meet their basic monthly needs during the pandemic.
Despite the government’s best intentions, the scheme as well as other relief measures, such as the reduction of the minimum statutory contribution rate for employees from 11 percent to 7 percent, are expected to hurt accumulated savings in the future, especially after retirement.
“For those who are not facing financial distress, the EPF withdrawals should be the last resort,” Sunway University Business School professor of economics Yeah Kim Leng told CodeBlue.
Get Personal Health Insurance
So, what can be done to ensure smooth sailing of post-retirement medical attention? Experts suggest the most classic health investment of all: a medical card.
The role and importance of a medical card is undisputed, especially during a medical emergency.
But it is not enough to ensure a smooth and worry-free retirement, especially for those who have existing medical conditions, as experts highlighted the importance of choosing the right health insurance coverage.
“Insurance serves as a protection for a person when they retire and no longer enjoy coverage from their companies for personal accidents, hospitalisation and surgery and, in some cases, outpatient treatment in clinics.
“However, the type of coverage is important and dependent on what health issues the person may face especially hereditary ones,” said Lee.
Suraya opined: “A comprehensive medical plan is probably the best defence one can make, second only to unlimited financial resources for access to the best medical care.”
Moreover, as the government slowly moves towards a new norm by easing the Movement Control Order (MCO), many have indeed returned to work, amid what looks to be better times than during the strict lockdown.
What remains to be seen is if the vast population will focus on spending less and saving more to avoid future financial problems, especially for when they are old.