KUALA LUMPUR, Sept 17 — Malaysia risks becoming unequal and polarised in terms of income unless government policy is overhauled, according to Asian Development Bank economist, Dr Jayant Menon.
Distortions in the economy caused by government policies have led to higher costs of living which is one reason why the majority of Malaysians will retire with only small amounts in their Employees Provident Fund (EPF), he argued.
“A lot of this increased cost of living can be traced to bad government policies that distort pricing and investment,” he said.
He cited what he called the “failed national car project” which resulted in Malaysia being one of the most expensive places in the world to own a car.
Other government linked companies also add to distortions and inequality, on top of crowding out private investment, he added.
He said the low amounts saved in the EPF reflect of the high cost of living in Malaysia, which are also apparent from high level of household debt, he added.
“Unless there is a major overhaul in policy soon, Malaysia is likely to become the most unequal and polarised high income country in the world,” he warned.
According to news reports, as at December last year, 69 per cent of EPF contributors at the age of 54 had less than RM50,000 in their retirement fund,
For them retirement is likely to be grim.
“Unless retirees have other sources of income, such as through private investment or if they remain dependent on support from children or the extended family, RM50,000 in their EPF will mean a very simple and meager living in their twilight years,” Menon said.
For the most part the small funds reflect low salaries.
Seventy-five per cent of households in Malaysia earn RM5,000 or less Suhaimi Ilias, chief economist at Maybank Investment Bank said, adding that 53 per cent of households earn RM3,000 or less per month and about 67 per cent earn RM4,000 or less a month.
“There are also jobs that are low on basic pay (hence low EPF contribution) and more on commissions, especially in ‘sales’,” he said.
According to the Statistics Department, the median household income for 2012 is RM3,626 while the median salary for Malaysians was RM1,500 for both 2012 and 2011.
Suhaimi said it would be more accurate to judge retirees financial health based on total savings rather than just “EPF savings”, such as deposits at banks, investments in public investment funds and private unit trusts, other assets especially rising value and liquid; properties, insurance, stocks, and bonds.
But there is no data on “total savings”.
Suhaimi noted however, if EPF is their only savings, then “the situation is rather grim” as the living costs continue to go up and to survive, he said they may have to continue working even after the official retirement age.
“The role of extended family is also pertinent, with children ‘chipping in’ to help their ageing parents financially, besides targeted - bit limited - financial assistances by government,” he added.
According to the EPF, an active member at age 54 has an average savings of RM167,000 in 2013.
For non-active members—those who contribute less than once a year—the average is RM26,000.
Both figures are below the recommended savings of RM196,800 ,which is based on the a minimal RM820 spending a month for 20 years.- See more at: http://www.themalaymailonline.com/malaysia/article/malaysia-risks-becoming-unequal-and-polarised-in-terms-of-income-economist#sthash.zYhrHhup.dpuf