Millions of Malaysians dip into retirement savings to make ends meet

Faced with rising costs and low wages, cash-strapped Malaysians jumped at the chance to drain billions from the mandatory savings fund

(SCMP) – Millions of Malaysians have been raiding their retirement savings to cover living expenses after changes to the country’s mandatory savings fund allowed billions of ringgit to be drained out of it in a matter of weeks.

Prime Minister Anwar Ibrahim’s administration restructured Malaysia’s Employees’ Provident Fund (EPF) in May following sustained public pressure for more direct access to retirement savings.

Kahirul Hamdan, 29, was among the nearly 3 million people who collectively withdrew about 7 billion ringgit (US$1.5 billion) from the EPF in the four weeks following the changes.

“I know I don’t have much saved up for my retirement, but we really needed the money at the time,” said the car mechanic, who earns about 3,000 ringgit (US$636) a month and pulled 1,000 ringgit out of his EPF account.

In the first year after the restructuring, 25 billion ringgit is expected to be withdrawn from the EPF, which had some 1.19 trillion ringgit under management as of the end of last year.

Private sector employers are required by law to match their employees’ monthly contributions to the fund, which was established in 1951. Civil servants have traditionally been covered by a separate, tax-funded pension scheme, but the government has announced plans to eventually transition them to the EPF as well.

Under the latest changes, 75 per cent of monthly EPF contributions are ring-fenced and cannot be accessed until the account holder reaches age 55; another 15 per cent can be withdrawn for specific purposes such as housing, healthcare and education; and 10 per cent can be withdrawn at any time for any purpose.

Anwar’s administration introduced the new withdrawal structure amid growing public angst with surging living costs and low wages, and as many Malaysians are still clawing their way back from the financially lean years of the pandemic.

Nearly one-quarter of all EPF members aged under 55 made use of the new “flexible account” facility last month, withdrawing 2,382 ringgit on average, according to the Finance Ministry. In November, the ministry warned that 6.3 million EPF account holders in this age group had savings of less than 10,000 ringgit.

The average amount being taken out “suggests a lot of small withdrawals from low-income groups who really need the cash,” said Geoffrey Williams, an economist with the Malaysia University of Science and Technology.

“They will quickly run out of funds … because low-income groups could only transfer a small amount. This will help in the short term but will not solve their financial problems overall.”

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