EPF has suggested 2 silver bullet proposals on how to handle the current retirement sufficiency and livelihood balance scenarios. These proposals are:

1. The creation of an Account 3 whereby 5% to 10% of the contributions will be allocated to this account and the members can withdraw it at any point in time.
2. A proposed lifetime pension approach for those born after 2009.

I disagree with these proposals as they are stop-gap measures at best. There are multiple interconnected human capital development factors and macro trends at play which make it so. We must first acknowledge that the main core issue behind all of this is the creation of an economically viable country with a productive population who can live, work and retire with dignity. I explain this in detail in this article here: www.im-possible-solutions.com/epf-silver-bullet-proposals/

To actually solve the core issue, my alternative and unorthodox suggestion is the creation of an Account 3 in the EPF funds for all newborn Malaysians whose minimum funds will be wholly paid out by the Government progressively as the parents meet certain goals in raising that next generation. 

So how will this work at a high level:

• The basic idea is that every newborn in Malaysia will be registered for EPF at birth. 
• The moment they are born and a birth certificate is presented to EPF, the Account 3 will be created whereby the Government will deposit a sum of money into the account. 
• We will then also create goals for the parents to meet whereby additional yearly funds will be deposited to the Account 3 until the child reaches 18 years of age. For example, if the child completes kindergarten/ primary school/high school or if they adhere to health check-ups they will get an additional yearly sum deposited to the Account 3.
• The amount in Account 3 will be reinvested by EPF to create a retirement safety net for the child in the future. This amount should not be allowed for any withdrawals until retirement.
• How the Account 3 will assist retirement:
  • Say RM5000 is the initial amount deposited upon live birth and the yearly amount is RM1200 if goals are met.
  • This means after 18 years of investment with a compounding interest of 5%, there will be RM 47,195 in the Account 3 at age 18. 
  • Assuming the person then retires at 55 years and with a yearly compounding interest of 5%, he will have RM181,541 in Account 3.
  • Note: for context, in today’s terms, EPF recommends RM240,000 by the age of 55 to be able to retire with dignity.
  • This is without us factoring in the savings of Accounts 1 and 2 that that person would have contributed as he worked. We can even consider having 2% to 3% of the EPF contributions be sent to Account 3.
• I would also like to point out that this also solves some of the issues of EPF coverage not impacting the whole Malaysian population I mentioned before.

• The cost of this: the government will need to maintain a maximum of 18 cohorts as the government infusions stop after 18 years of age for each cohort.
  • The total cost of one cohort cost for 18 years is RM5000 times 440,000 births (RM2.2 bil) + RM1200 times 440,000 kids x 17 years (RM8.98 bil) = RM 11.18 bil.
  • Coincidentally, therefore the maximum annual cost at full operationalisation with 18 cohorts being funded in year 18 will be RM11.18 billion.
  • To put this figure into context, this is after 18 years of rolling this out ie in year 18 and this amount is only 2.8% of the Government’s 2023 budget (RM388.1 billion)
  • Note: in 2021 alone we had only 439, 744 live births. See https://www.dosm.gov.my/portal-main/release-content/vital-statistics-malaysia-2022  For the purpose of calculation, we have rounded this up to 440,000 birth yearly.
  • This also assumes that all parents will meet the goals for the yearly contribution by the government which is likely not the case.
  • Government can also adopt the KWAP model whereby they provided an initial seed funding that will subsequently pay for these annual payments.
  • We must see this cost as an investment to encourage more people to have children as well as a method to protect future generations retirement.

As mentioned in my earlier article, an EPF-only solution will not be enough. We need to also create additional initiatives across multiple agencies and ministries to truly tackle the issue of maintaining an economically viable and competitive country with a productive population who can live, work and retire with dignity. This includes:

1. Ensuring better wealth distribution and wage increases for employees. 

This can be done not just through minimum wage but also through less invasive regulatory frameworks such as:

1. Introduce a CEO Pay ratio disclosure in Annual Reports of publicly listed companies under Bursa Malaysia
2. Introduce a salary transparency law as part of the Employment Act under the Ministry of Human Resources

I have written on these two concepts in detail in a previous LinkedIn post here.

2. Progressive citizenship and immigration laws

We need younger and more productive people in Malaysia to keep the economy growing and to support the elderly generation. Given our low fertility and ageing nation scenario, this means we should not fear migrants but rather need to embrace them as they are necessary for maintaining Malaysia’s economic competitiveness and productivity. 

We cannot be trapped in old policies whose rationale no longer applies. In fact, a scan of initiatives being done by developed ageing nations such as Portugal and Japan will show that they are actively encouraging foreigners to come to their rural areas and contribute to the economy with eventual citizenship pathways.

See: 

• https://www.instagram.com/p/CcKi196K7po/?utm_source=ig_web_copy_link
• https://www.weforum.org/agenda/2022/04/countries-paying-you-to-move-to-countryside/ 

Worryingly, the opposite is happening in Malaysia with the whole controversial proposed constitutional amendment to citizenship laws being put forth by the current government. The proposal is likely to make the right to citizenship a lot harder to obtain.

See: https://www.malaymail.com/news/what-you-think/2023/06/28/proposed-amendments-on-citizenship-laws-in-malaysia-one-step-forward-several-steps-back-shad-saleem-faruqi/76849 

On the immigration policy forth, in the course of my work with YB Senator Datuk Seri Zurainah (DSZM), we have tried to bring this matter up in Dewan Negara. We posed questions to the Home Affairs Ministry in Dewan Negara as well as the Senator’s titah diraja speech about how they are developing immigration policies to encourage foreigners to set up in Malaysia given the ageing nation dan love of fertility trends.

The answers were less than satisfactory:

• Response to DSZM’s titah diraja speech – See page 89 of this document: https://www.parlimen.gov.my/files/hindex/pdf/DN-28032023.pdf 
• Response to question – See page 81 of this document: https://www.parlimen.gov.my/files/jindex/pdf/JLDN04042023.pdf 

3. Financial literacy education to the masses

We need to mainstream financial literacy and investment education to all levels of the population. Future generations must be taught how to invest, save, do their taxes etc.

4. Care economy regulation and women and children incentives

We need better regulation and funding of the care economy to allow women to continue to have children and still remain in the workforce. We need to create environments not just for women but also for men to feel that they can and want to have children. 

5. Regulatory frameworks don’t assume the burden of family care is on women. 

In relation to the previous point, currently, the burden of care duties is perceived to fall on women. We need to develop laws and regulatory frameworks that don’t assume the burden is on women. People and families can and should have preferences on how they want to handle the family care situation. If you want to be that traditional family whereby the mom stays home that is ok but on the flip side it is also ok when the husband stays home as a househusband. The idea here is that we should not limit those preferences to a default with laws that assumes it’s the women who must play that role. 

Example 1 of this: why allow 90 days maternity leave only for women while paternity leave is 7 days? Why aren’t the 90 days shared as parental leave between the two parents so that the family can choose if they want the mother or father or both to have the option for 90 days of leave? As it is, that amendment to the Employment Act last year to give 90 days maternity leave has resulted in greater discrimination towards hiring women. Companies are actively avoiding hiring women who are likely to get pregnant soon to avoid this 3-month salary cost.

Example 2 of this: the i-Suri EPF schemes only allow husbands to contribute to housewives and do not recognise househusbands for this scheme. 

6. Tax breaks for contributions of the Account 3 EPF Mechanism

If the Account 3 mechanism as suggested above is introduced, we should encourage tax breaks for specific contributions to Account 3. This is to encourage more funds to be parked there.

In conclusion, we need to do more to address the core issue at play with the EPF proposals: ie maintaining an economically viable and competitive country with a productive population who can live, work and retire with dignity. 

This will require the coordination of a cross-cutting ministerial committee at the highest levels of Government. Only such a platform can begin to plan and roll out the necessary measures to handle what I believe is a demographic time bomb and one of the defining challenges of my generation and the next 30 years. I pray we take action in time.