Millions of Malaysians are dipping into their retirement savings to make ends meet

“I know I didn’t save much for 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 withdrew 1,000 ringgit from his EPF account.

In the first year after the restructuring, RM25 billion is expected to be withdrawn from the EPF, which managed about RM1.19 trillion at the end of last year.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 transfer them to the EPF as well.

As per the latest amendments, 75% of the monthly contributions to the EPF are earmarked and cannot be accessed until the account holder reaches the age of 55; another 15% can be withdrawn for specific purposes such as housing, healthcare and education; and 10% can be withdrawn at any time and for any reason.

Anwar’s administration introduced the new withdrawal structure amid growing public anxiety over rising living costs and low wages, and as many Malaysians are still trying to recover from lean years during the pandemic.

Nearly a quarter of EPF members under the age of 55 used the new “flexible account” scheme last month, withdrawing an average of 2,382 ringgit, according to the Finance Ministry. In November, the ministry warned that 6.3 million EPF account holders in this age bracket had savings of less than 10,000 ringgit.

The average amount withdrawn “suggests a lot of small withdrawals from low-income groups who really need the money,” said Geoffrey Williams, an economist at the Malaysian University of Science and Technology.

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

This will help in the short term, but will not solve their financial problems as a whole.

Cassey Lee, a senior research fellow and coordinator of the ISEAS-Yusof Ishak Institute’s regional economic studies program, said overuse of the short-term withdrawal scheme could fuel future inequality and create “greater pressure to provide income support to retirees who have earned lower incomes.”

Experts are increasingly concerned about widespread poverty among Malaysia’s elderly, particularly low-income retirees who have little choice but to re-enter the workforce to supplement their savings. By 2030, the government projects that about 15% of the population will be aged 60 or older.

According to government estimates, about 3.8 million people had already reached retirement age last year. The Malaysian Employers Federation expects that number to nearly double to 7.3 million by 2040.

Economists blame the stagnant wages on Malaysians’ low savings rate, with the poorest half of workers seeing their real wages increase by just 500 ringgit between 2010 and 2019, or just 56 ringgit per year, according to a 2023 study by the Khazanah Research Institute.

Although the government has increased the monthly minimum wage by 25% to 1,500 ringgit in 2022, this amount remains below the poverty line of 2,208 ringgit and the living wage of 2,700 ringgit proposed by the central bank in 2018.

“The biggest structural problem Malaysia faces is low income,” economist Williams said.

The rising cost of living after the pandemic has only added to the pressure on low-income people, partly because of wars elsewhere and the ringgit’s continued weakness against the US dollar.

Malaysia’s heavy reliance on food imports has further exacerbated the cost of living crisis, while necessary but painful cuts in subsidies have not improved the situation. Most recently, the government removed general subsidies on diesel.

“The increase in the cost of living after Covid-19 has been quite rapid, leading to a further deterioration in purchasing power for some,” said Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat – particularly “among low-income earners.”

However, not all Malaysians who have opened their flexible EPF account are in financial difficulty. For some, it represents an opportunity to pursue personal interests, as was the case for civil society activist Syahmie Fayyadh Jaafar.

He withdrew 1,000 ringgit from his EPF to fund a recent trip to Sabah, where he led initiatives with partner organisations. Syahmie sees his flexible account as a potential “adventure fund” to cover expenses ranging from professional development to weekend getaways.

“I like to think of it as a ‘treat yourself’ moment, funded by my own future self,” he said.

For millions more, however, the EPF does not just exist to ensure comfortable retirements, it must also help them achieve that goal, according to Afzanizam of Bank Muamalat, who said the government will need to streamline its policies to create more targeted cash assistance and social protection.

The real challenge, said Lee of the ISEAS-Yusof Ishak Institute, will be to put in place policies to ensure that wages increase in line with the rising cost of living.

“The pressure will be increasing on the current government to implement labor market reforms that aim to raise workers’ real wages,” Mr Lee said.