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Monday, April 27, 2015

EPF and Retirement Age

A few years back, when the Govt had decided to increase the retirement age for civil servants from 55 to 56, and then to 60, it was only time before the private sector is being compelled to adopt the same retirement age. When that had happened, there was a mismatch between the private sector retirement age and the EPF's retirement age.

Employees who were supposed to retire at the age of 55, were instead continued to work. Yet they received the fund that they were supposed only to receive upon their retirement. At the same time, they no longer contributed to EPF even though they are going to work for at least another 5 years.

Upon receiving the fund from EPF, many used up the fund within 5 years.  With Malaysian life expectancy currently hovers between 75 to 76 years old, this means many of our senior citizens will be left without fund for the next 10 to 15 years.

EPF has its roots in its predecessor, the Employee Provident Fund Board which was formed under the Employee Provident Fund Ordinance 1951. In 1982, the ordinance was upgraded to an act, and in 1991, the law was replaced with EPF Act 1991. The sole reason of setting up the fund was to assist Malaysians to save money for their use when they retire.

Retirement Age
The original act, which was an ordinance was created during pre-independence time. Back then, access to healthcare service was not available to most Malaysians. Today, you can find rural clinics at almost every district nationwide. With availability of cheap healthcare services and improving hygiene awareness, life expectancy for Malaysians gradually rose from 60 to 75 today.
The removal of communist threat had also helped this as people can live longer without being worried their lives would be snuffed out be these terrorists.

Unclaimed Monies Act 1965
You would have thought that people would ensure their hard-earned money would only be spent by themselves. However, the opposite is true. Every year, banks around Malaysia had to remit millions of ringgit worth of fund to the Unclaimed Monies unit, which is located at Menara Maybank. What constitute unclaimed monies are monies kept in CASA (current account and savings account) that are inactive for period of more than 7 years (meaning no deposits or withdrawals), non-auto renewal fixed deposits/investment accounts more than 7 years) and unclaimed EPF fund belonging to members who are more than 75 years old. Apparently there are Malaysians who forgotten they had opened EPF account which had accumulated funds for their retirement. Yet they had forgotten (or they had died without informing their next-of-kin.
So what was EPF's actual proposal that got buried under tonnes of misplaced concern that the EPF monies would have been used to bail out the so-called mismanagement of 1MDB?

EPF's Proposal
Far from being used for sinister purpose, the suggestions floated by EPF consist of 2 distinct amendments.
To raise full withdrawal age from 55 to 60.
To increase maximum tenure for members to keep their funds in EPF from 75 to 100. This is to allow the members to continue receiving dividends over their fund in EPF till the member reaches the age of 100.

My Stance
As always, I would need to state my stance.
I have no problem to wait till 60. So far, EPF had done a good job in their investment. So I am not duly worried. But that is just me.
This is something we should consider on. This would do good to the member and his/her next-of-kin. To prevent this from ever happening to us, make sure we prepare our will to include our EPF savings. Then again, if you don't formalize your will, your funds might end up in the hands of Amanah Raya Berhad. That again, would be something for discussion on another day.

Note - currently I have a deluge of ideas what to write about our socio-economics (my background was in accountancy, with strong flavour of economics), unfortunately my focus would be more towards economics. Once I settle back into my old routine, I will write again about military and defence. One topic is dancing behind my head right now. Will see how it ends up.

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