Savings inadequacy and systemic gaps in social security coverage for the working-age population could lead to a severe retirement crisis as the country is expected to become an ageing nation by 2030.
The Employees Provident Fund (EPF) warned that this could have huge socio-economic implications following the Covid-19 pandemic and stressed the importance of adopting a holistic approach to address the issue.
EPF, in its latest findings, reported that a majority of its members in the low- and middle-income groups are likely to live in poverty in old age unless mitigation measures are taken.
The data showed a 60 per cent decline in median savings among the 5.05 million EPF members in the low-income group (Bottom 40) from RM2,434 (RM10 per month for 20 years) to RM1,005 (RM4 per month for 20 years) post-pandemic.
A 17 per cent drop in median savings from RM30,113 (RM125 per month for 20 years) to RM24,995 (RM104 per month for 20 years) was reported for the 5.05 million members in the Middle 40 category.
However, median savings among the Top 20 group (2.53 million members), who are the least affected by the pandemic, saw an eight per cent increase from RM140,440 (RM585 per month for 20 years) to RM152,043 (RM633 per month for 20 years).
EPF chief strategy officer Nurhisham Hussein, in an interview, said the total withdrawals of about RM99.5 billion by its members exceeded the total contributions of RM53.9 billion up to Aug 31.
"This is the first time (in EPF's history).
"There were instances where some members wished to make withdrawals under i-Citra, but could not do so as they had depleted their savings.
"Almost half of EPF members have less than RM10,000.
"If we were to base on the minimum target of RM240,000 savings that EPF members should have upon reaching the age of 55, only three per cent of us can afford retirement (and sustain it with the savings)."
He said four to six continuous working years were needed to recoup the savings if a total of RM21,000 was withdrawn under i-Lestari, i-Sinar and i-Citra, based on the median EPF worker income of RM2,066 and minimum wage of RM1,200.
To address the matter, he said, EPF had drawn up several recommendations not only for the betterment of its system, but also the overall social security in the country.
He said they revolved around four strategic responses, namely expansion of mandatory coverage, improving retirement adequacy, promoting lifetime income security and enhancing financial literacy.
"Instead of listing sectors in expanding EPF mandatory coverage, we suggested that it is implemented in phases on workers from the informal sector (gig economy workers), contract for services, as well as foreign workers.
"Currently, there is no formal legislation for the social protection coverage of informal sector workers and individuals on contract for services.
"To improve retirement savings, multiple contribution sources, introducing national-level initiatives and incentives, as well as reinstating tax relief for EPF contributions, among others, could be considered."
In promoting lifetime income security among its members, he said, EPF proposed a basic income payout, providing lifetime income via publicly managed annuity and wealth protection via reverse mortgage.
Nurhisham said the proposals were in the preliminary stage of discussion with the government and agencies, with some requiring amendments to the EPF Act 1991, such as the expansion of mandatory coverage.
Meanwhile, advocating financial literacy could be done through tools and education campaign, such as financial planning platform, My Money Matters, National Financial Literacy Survey and Belanjawanku.
Nurhisham hoped some of the strategic responses could be implemented from next year.
"Of course, we have to take into consideration feedback from the stakeholders, including employers. As it is, some businesses have been badly affected by the pandemic.
"Then, there's the issue of wages. For some people, it is not a matter of whether or not they want to save.
"Their savings are just not enough (for retirement)."