By Ranjit Singh
THERE are calls for the Employees Provident Fund (EPF) to cut employees’ contribution to the fund in order to encourage spending as part of the government’s move to stimulate the economy.
This is not the first time such calls were made. Previously, when the government provided stimulus to the economy in 2009, 2013 and 2016, it had lowered the EPF contribution rate for employees from 11% to 8% on an optional basis.
The rationale for the move was to enable the employees to have more disposable income. This was hoped to act as a catalyst to the economy as private consumption accounted for more than 50% of the country’s Gross Domestic Product (GDP).
However, there is a lack of empirical evidence to show that the EPF cut provided the stimulus to the economy as it was hoped to do.
Studies have shown that Malaysians are ill-prepared for retirement as more than 70% of contributors have less than RM50,000 in their EPF savings when they reach the age of 55.
The question that begs to be answered is, will reducing the EPF contribution rate be as a wise move as evidence shows a majority of contributors have insufficient retirement funds?
The rakyat needs to boost their retirement savings and allowing them to dip into their old age savings does not come across as being prudent.
It would be rather myopic to assume that reducing the EPF contribution rate will be the only panacea to overcome a lethargic economy. The government should look at reducing tax rates as one of the measures to stimulate the economy.
Given the government’s precarious fiscal position, it does not have much room to manoeuvre. Perhaps, it could also raise public expenditure to stimulate the economy as it has been proven that government spending has a large multiplier effect on the overall economy.
The government has to be responsible for introducing measures to address weaknesses in the economy and resorting to quick fixes is not the way to manage challenges.
We must not allow any moves to “gamble” with our retirement funds. For many Malaysians, the EPF is their only source of retirement savings and any moves to “threaten” the status quo should be vigorously defended. – Feb 11, 2020
