High EPF returns could woo non-contributors, says economist

 

EPF recently announced a dividend rate of 5.5% for conventional savings and 5.4% for shariah accounts, higher than the 5.35% and 4.75% respectively in 2022.

PETALING JAYA: An economist believes that some of the 40% of the workforce not covered by EPF could be convinced to contribute to the provident fund if it continues yielding high dividends.

Aslam Haneef, a professor at International Islamic University Malaysia, said EPF must continue yielding high returns and exhibiting good governance to encourage non-members to contribute.

He said non-contributors were likely prioritising investments in pursuit of higher returns, although he maintained that EPF was “the safest option” for workers.“(We) need to instil the value of retirement savings in people,” he told FMT.

Aslam also said many workers did not contribute to EPF as their wages were too low to save, especially amid the rise in the cost of living.

The provident fund’s CEO Ahmad Zulqarnain Onn had said that some 40% of Malaysia’s 17 million labour force was not covered by EPF, with the majority being informal sector workers, including freelancers and the self-employed.

According to EPF data, an employee earning the minimum wage of RM1,500, with an annual salary increase of 3%, would be able to save up to RM479,000 by the time they reach the age of 55.

EPF recently announced a dividend rate of 5.5% for conventional savings and 5.4% for shariah accounts, higher than the 5.35% and 4.75% respectively in 2022.

Shankaran Nambiar of the Malaysian Institute of Economic Research said informal workers with inconsistent, assignment-based incomes were more likely to choose short-term investments with high returns.

“Given the cyclical nature of their work, they may be more concerned about saving for times when they do not have any job,” Nambiar said.

However, he said that high-return investments such as cryptocurrency and foreign currency were a gamble and unreliable for the long term.- FMT