Preparing for an ageing nation

IT IS never too early to think about retirement” – such a quote may not be deemed relevant by graduates or young entrants to the workforce.

However, such is the reality of long term financial planning, whereby it is necessary to start at a young age and stays relevant at each key life stages.

Emphasis should be placed on preparing for your older days. As age catches up, we need to plan and prepare for a comfortable life beyond our career’s span.

This is glaringly pertinent for Malaysia as its ageing population – which is expected to account for 15 per cent of the population by 2035 – could bring about massive impact to the country’s economic health.

According to DM Analytics managing director and chief economist Dr Muhammed Abdul Khalid, Malaysians aged above 60 years and above now account for eight per cent of the population.

He said the speed at which Malaysia’s population was ageing was the fastest in the world.

“Malaysia’s population problem is a serious issue that is not being given enough attention. By 2050, we will be in serious trouble.

“The entire structure of the economy and ideology needs to be changed, because in future, when we have less workers, it means we are going to collect less tax which will translate to lower capability for expenditure.

“Who is going to finance this?” he said to reporters at a forum on ‘Malaysia’s Population in 2050: What Does This Mean SocioEconomically?’ in April.

He said Malaysia presently did not have a comprehensive policy to address the ageing population issue.

In addition, the country’s fertility rate, which currently stood at an alarming rate, could provide additional pressure on productivity and consumption, going forward, thus impacting economic growth.

Low levels of financial literacy

There is a growing concern on the low financial literacy level of Malaysians as measured by financial knowledge, attitudes and behaviour, said Bank Negara Malaysia (BNM) Deputy Governor Abdul Rasheed Ghaffour, based on BNM’s observation on long-term financial planning.

He added that more than 75 per cent of Malaysians find difficulty saving RM1,000 for emergency needs, with the economic uncertainties and high cost of living.

“There should be greater awareness on the importance of saving for the future,” said Abdul Rasheed in April during the launchg of EPF and Credit Counselling and Debt Management Agency (AKPK)’s financial education retirement module.

Based on the Financial Capability and Inclusion Demand Side Survey conducted by Bank Negara Malaysia in 2015, the main observations on the state of financial literacy of Malaysians is that the majority of Malaysians have inadequate knowledge on financial matters to enable them to make informed financial decisions, particularly among the vulnerable groups.

A significant majority of Malaysians also display shortsighted tendencies, it said, and are inclined to ‘live for the moment’ – that is to only focus on instant gratification at the expense of long-term financial planning.

“More than 75 per cent of Malaysians find it difficult to even raise RM1,000 to meet emergency needs,” it added. “Only a quarter of Malaysians have any form of investment; and .ost Malaysians indicated that they will face financial pressure should there be a loss of income.”

Sustainable retirement a major concern in Malaysia

With Malaysia just over 10 years away from being an aged country by 2030, there are concerns that Malaysians have yet prepared for a comfortable retirement and enough savings for their senior years.

EPF chairman Tan Sri Samsudin Osman highlighted that while Malaysians are enjoying an increase in lifespan from an average age of 50 in 1950s to the present average age of 75, the issue is not about longevity, but rather the quality of life as they get older.

“Fourteen years until 2030 is a very narrow window of opportunity for the Malaysian Government to address complex issues, such as social protection and public policy and national infrastructure development, and ensure that our country has a solid social security infrastructure.

“Recognising this as a potential crisis, the EPF has been working closely with various stakeholders to provide input towards the development of policies and legislation in areas relating to social protection such as minimum retirement age and re-employment policy,” Samsudin said in EPF’s Annual Report 2016.

Last year saw the creation of the Malaysian Social Protection Council at the end of 2016, the result of conversations facilitated by the EPF among key stakeholders for the past few years.

The council will oversee the development of a robust social security platform to cater for all Malaysians.

In 2016, EPF also actively engaged at the grassroot level and communicating the importance of financial and retirement planning through its Public Briefing Programme 2016 and Preparation for Retirement.

As at December 31, 2016, a total of 213 public briefing sessions were conducted, reaching out to 14,782 participants on topics related to financial and retirement planning, while covering EPF products and services such as Retirement Advisory Service (RAS).

On the issue of sustainable retirement, RAS advisor Ronney Khairuddin had recently highlighted at a talk ‘Retirement Advisory Services – Your first step to retirement planning by EPF’ that as many as 65 per cent of Employees Provident Fund (EPF) members aged 55 had RM50,000 or less in their EPF savings last year.

Khairuddin had described this as a worrying scenario, given that most Malaysians would need more savings for longer retirement days.

“The amount of RM50,000 is not enough to cater for a 20-year retirement period based on a life expectancy of 75 years,” he said.

As such, while the retirement age in Malaysia is 60, Khairuddin said that Malaysians who are still productive can continue contributing to the EPF up to the age of 75.

He also emphasised that this was not the time for Malaysians to spend more but a time to save as much as they could.

According to the EPF, one in three Malaysians does not have a savings account, most do not have enough savings to last more than five years after retirement.

The EPF estimated that at a minimum, a member who is 55 years old must have at least RM228,000 in his or her EPF savings to be able to withdraw RM950 a month based on life expectancy of 75 years. Whether this amount is sufficient, depends on the individual’s lifestyle.