Socso pension scheme can help defuse the retirement time bomb

 

Figures about retirement savings, divulged by a senior EPF officer a few days ago, should be cause for worry in government circles, enough to inspire efforts to put things right. If not, the country is heading for big trouble.

EPF’s chief strategy officer Nurhisham Hussein said Malaysians who plan to retire in 20 to 30 years from now will need to have a savings of between RM900,000 and RM1 million if they wish to live the rest of their lives comfortably.

Some 57% of EPF contributors currently have less than RM50,000 in their accounts, only enough to last them less than four years after they retire. If there are medical emergencies the cost of which is soaring, that period could even be shorter.

All indications are that a large number of private sector employees will be totally dependent on the government for medical treatment and monthly handouts after they retire.

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Those with filial children may escape the expected “poverty trap” but as surveys have shown, this is not a guarantee.

However, government pensioners will be spared from this dim future as they are usually treated well by whoever is in power. We know this is a huge vote bank – 1.2 million of them.

To be honest, EPF has been warning our politicians time and time again of this bleak scenario with some hard facts and figures. They did this each time our populist elected representatives had pushed for special withdrawals since the time Covid-19 hit in 2020.

But these calls by the professionals managing our hard-earned funds were completely ignored for popularity and of course for the votes.

Last week, human resources minister M Saravanan announced that Socso is considering a pension scheme for private sector employees. Can such a scheme prevent a looming social disaster among senior citizens?

Of course, private workers and employers will ask what the pension proposal will cost them. The current Socso contribution rate ranges from 0.5% to 3% of basic salary, while the employer’s rate is about 1.75%.

With such a “low” percentage in contributions, can Socso afford to dish out pensions in addition to its current task of providing social security protection for workplace injuries, emergencies, occupational sickness, and death?

There is a fear that any push by the government to introduce a Socso pension scheme will leave workers and employers suffering more salary deductions, which will impact their disposable income and push up the operating cost of businesses.

There are an estimated 7.5 million Socso contributors, according to reports. This includes foreign workers who started contributing since 2019 but it is not clear how many of them are involved.

The rule is that anyone who earns a basic salary of RM4,000 and below is required to contribute. However, those who started contributing when earning below this amount must continue even if their salary goes way above the minimum.

In addition to this, all these workers and their employers must also make mandatory EPF contributions. For those earning RM5,000 and below, the rate is 11% while employers must chip in a minimum of 13%. For those earning above this threshold, it’s 11% and 12% respectively, while for those above 60 who are still employed, it’s 6.5% and 5.5%.

For civil servants, the government contributes 17% of basic salary towards the Retirement Fund (Incorporated) or KWAP to pay their gratuities and pensions after they retire. It is said 12% of this goes towards their pension.

Based on this, Socso contributors may have to face deductions of a total of about 25% of their basic salary including EPF payments, if a pension scheme is introduced. Employers will have to contribute this much but it can be lower if the government chips in.

Should the government wish to protect Malaysians from chronic old-age poverty, it should also contribute towards a Socso pension scheme. By doing so, it can stop all the periodic aid efforts to the B40 group, which has actually grown in number now.

On its own, Socso looks ill-equipped to provide workers with a monthly pension, even a paltry sum, taking into account its existing social security commitment towards them.

Can then both EPF and Socso work together to resolve the impending “poverty trap,” and make the pension proposal more viable? Some say there could be an overlap. But I think we have the expertise to work out a formula to overcome this.

Combined efforts by EPF, Socso, the finance and human resources ministries can work out a formula that best suits Malaysians.

The question of whether the two schemes can be merged or exist in parallel is something for the experts to mull. But any such proposal must not put a further dent to the disposable income of workers and not spike the costs of doing business.

The pension plan may work if EPF and Socso join hands while politicians keep their hands off the two organisations, and find other means to bail out badly-run companies, with incompetent management to boot. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.