Staggered rates based on wages can help bolster low EPF savings

 

A workers’ union has called for a hefty increase in employer contributions to the Employees Provident Fund, suggesting a mandatory 20% for those earning RM4,000 a month and below.

The current rate is a minimum of 12%.

An increase rate of 20% was mooted by the Uni Malaysia Labour Centre, whose president, Shafie BP Mammal, said the increase is necessary to ensure that contributors will have adequate savings in their EPF accounts when they retire.

Its concern mainly arises from the fact that 6.62 million EPF members, or 52% of the contributors aged under 55, have less than RM10,000 in their savings.

A human resources manager in a manufacturing firm said the company pays the minimum basic wage of RM1,500 to about 3,000 workers. So, the total salaries paid out per month is RM4.5 million.

At a 12% contribution, the firm forks out RM540,000 monthly in EPF payments. Raise it to 20% and the EPF bill shoots up to RM900,000.

To be honest, this will put just too much pressure on the employers in all sectors.

So why this sudden push and anxiety? Obviously, fear has started to set in among Malaysians about the poor state of affairs in their EPF savings as well as savings elsewhere.

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The warnings had been loud and clear over the last decade but politicians and many contributors were just not bothered about the long-term implications about allowing too many special withdrawals.

Now, everyone realises that more money has to go into the savings of members. One of the major reasons for this scenario was caused by the policy of having multiple special withdrawals which led to members taking out their savings even if they didn’t need them.

The union is now trying to pass the buck to the employers although the dangerous situation was created by the members themselves and the government.

Raising the employers’ contribution will have a major impact on current and future investors as operational costs will obviously burgeon. Employers and investors will react strongly if the government continues to mollycoddle employees at their expense.

So, what is the solution now as the EPF savings of half of the contributors definitely need to be boosted to save their future? Maybe a way out of this is for all stakeholders to shoulder the burden – the workers, employers and the government too.

Members could start being responsible by raising their share voluntarily. The minimum is 11% but there is no maximum limit.

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On the employers’ side, a staggered mandatory contribution amount based on the income of workers can be introduced to have a milder impact on businesses.

This means employers will contribute a little less to higher income earners, easing the employers’ burden a little.

As an example, the employer could contribute 15% for those earning RM3,000 a month or less; 13% for those earning between RM3,000 and RM5,000; 12% for the RM5,000 to RM8,000 bracket and 10% for those taking home more than RM8,000 a month.

Obviously, the higher income workers will grumble but it can be explained as being a social contribution to help those in real need. Employers too have a discretion to pay any rate more than the minimum specified which can see some good workers being given a good deal.

Politicians and the government must stop the habit of pleasing the masses when they know that low retirement savings will have a huge impact on Malaysians. They must also avoid putting too much pressure on businesses, many of whom are struggling to keep afloat. - FMT

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