KUALA LUMPUR: Over 90 per cent of Employees Provident Fund (EPF) members under 30 years of age will not have enough basic savings of RM240,000 by retirement age, according to a Khazanah Research Institute (KRI) report.
EPF members make up 60 per cent of the labour market, excluding those working in the public and the informal sector.
According to EPF's estimation, an individual needs to have a minimum of RM35,000 by age 30 in order to achieve basic retirement savings of RM240,000 by age 55.
KRI said data of EPF members' contributions from 2019 to 2022 show that only the top ten per cent in the below 30 years of age category have more than RM35,000.
The top 10 per cent's average savings in 2022 was RM49,061.
"This highlights the structural issue of low starting salaries among those beginning to enter the job market as they cannot achieve the basic EPF contribution for retirement," it said in its report titled "Households and the pandemic 2019-2022" - the state of households 2024.
It found that those under 30 years of age were less affected by the EPF withdrawals during the Covid-19 pandemic, as they generally would have lesser financial commitments in terms of housing/vehicle loans, dependents etc.
"Although it can be argued that their wages may improve through career progression, there is a compounding effect attributed to low starting salaries, as it typically results in slower wage growth and even increased instances of job mismatches," KRI said.
The research institute in its report acknowledged however, that with the increase in the contribution share for EPF's Account 1 from 70 per cent to 75 per cent, EPF projects that 65 per cent of its members may have the means to achieve basic savings by 2035.
The report also highlighted the need to reexamine the RM240,000 savings target, which has not been revised since 2019.
KRI said the target assumes that the individual would use RM1,000 per month for 20 years.
"As the average Malaysian's life expectancy increases, the target of RM250,000 may be insufficient and would require re-examination as this figure has not been revised since 2019," KRI said.
It stressed that individuals approaching their respective retirement ages and beyond may face increased adversities such as health and disability risks alongside the depletion of their retirement savings.
"It is also important to note that those working in the informal sector may face even dire prospects regarding their retirement as they are currently not obligated to contribute to the EPF. These individuals, who are already facing issues regarding lower average income, may also have little to no safety net for retirement in comparison to those in formal employment," KRI said.
While acknowledging the growth for voluntary self-contribution schemes, the uptake was still considerably lower at 730,066 voluntary contributors in 2022.