What happened when one country let people raid their pensions

When the pandemic hit, and the world shut down, Malaysians were largely left to fend for themselves.

With no furlough scheme and limited help from the government, they were forced to dig into their savings to survive. Many raided their pension pots, after the rules were made more flexible to allow people to withdraw money to survive lockdowns.

They took out billions of pounds, using their pension as a cash machine. Now, Malaysians teeter on the brink of disaster. Many have exhausted their retirement savings and face living out old age in poverty.

This loosening of pension rules is exactly what think tank the Resolution Foundation recently called for in a major new report.

It argued that British savers should be allowed to borrow from their pensions to weather financial hardship.

More than £114bn has accrued in workers’ pension pots since automatic enrolment came into force 10 years ago, according to official figures.

But while schemes in America and South Africa, which allow cash withdrawals for any reason and loans to be secured against lifetime savings, have largely been successful, increasing pension flexibility in Malaysia has left the nation facing a retirement crisis.

During the pandemic, millions of Malaysians were permitted to make four rounds of cash withdrawals from their pensions, totalling 145bn Malaysian ringgit (£24bn). The Employees Provident Fund, the main Malaysian retirement fund for private sector employees, saw total assets dip 15pc after more than 8m savers made withdrawals to survive the financial shock of lockdown.

With each round of pension raids the publ i c demanded more, amid limited direct government support. Now, millions face being unable to afford to retire, and unlike Britain there is no equivalent of the state pension in Malaysia. Geoffrey Williams, an economist at the Malaysian Institute for Economic Research, said: “The example from Malaysia shows that withdrawals from pension funds leads to widespread pensions inadequacy and old-age poverty. At best it requires full-scale evaluation; at worst, it is a recipe for disaster.”

Millions in Malaysia cannot afford to retire after using their savings to survive lockdowns