Malaysia’s Employees Provident Fund, one of the world’s largest and oldest pension funds with trillion ringgit ($367 billion) in assets under management, has set KPIs for its employees around driving more voluntary contributions from fund members.
The move is part of a broader effort to boost retirement savings rate among working Malaysians. According to EPF CEO Ahmad Zulqarnain Onn, the fund has enlisted all of its branches (of which there are 68 according to its website) and mobile teams for member outreach almost 365 days of the year.
The result is almost 1.2 million of its 8.8 million active members (those who contributed to their account in the past 12 months) made a voluntary contribution in the last year.
“We actually have to start thinking [in a way] which is not natural, sort of like an asset manager trying to gather assets, or like the consumer banker trying to get customers,” Ahmad Zulqarnain told the IMAS Investment Conference in Singapore on 23 April.
Similar to many other Asia countries, Malaysia is grappling with a longevity challenge that comes with an improved life expectancy in the past few decades. When EPF was established in 1951, Ahmad Zulqarnain said the withdrawal and retirement age was 55 while the average life expectancy was 54. Now, the retirement age remains the same while the average life expectancy has increased 20 years.
“This system was set up with expectations that you were not going to live very long after you retire. But now we have to design a system where you are going to live 20, 30, or even more years after you retire,” he said.
“What we also find is in a provident fund system when you allow for lump sum withdrawal, too many people spend the money too quickly.
“Our research shows that 50 per cent of people exhausted their money after five to seven years, because most people just can’t figure out how to manage the money.”
All members can benefit from a pension top-up but the group that will need voluntary contribution the most is self-employed workers and those in gig economies. Similar to Australia, Malaysia does not require self-employed workers to make mandatory payments into their pension.
In fact, 700,000 of the 1.2 million members who made voluntary contribution last year were in these informal sectors of the economy, Ahmad Zulqarnain said. The upper limit to self-contribution is 100,000 ringgit per year.
“KPIs would be at grounds level and an individual level. For example, number of new signups – so people that don’t have an EPF account that you’ve managed to sign up – and the number of people that made a voluntary contribution,” Ahmad Zulqarnain said.
The fund seized every venue it can get to reach members – shopping malls, night markets, schools, employer organisations and its own micro financial literacy programs.
Not everyone who work at EPF empathised with the mission initially though. The initiative was a “process of change” even for staff and the fund conducted extensive training around its purpose. “Because they were used to being in the office, [staff were saying] why are you asking people to go out, I don’t know how to do this, or I don’t want to talk to people,” Ahmad Zulqarnain recalled.
“But that’s kind of the evolution we started because in absence of more legislation – which is hard in a society like Malaysia – trying to make informal [sector] workers mandatorily contribute, we’ve gone down the voluntary route, but it does require a lot of resource.”
EPF, also known as KWSP, is a federal statutory body under Malaysia’s Ministry of Finance. The mandatory contribution rate for members in private and non-pensionable public sectors is 11 per cent, and 12-13 per cent from employers depending on the employee’s monthly income.
The contributions then will be credited across three accounts for each member: 75 per cent goes to ‘Akaun Persaraan’, a repository for savings aimed at retirement; 15 per cent goes to ‘Akaun Sejahtera’, a lifecycle fund; and 10 per cent goes to ‘Akaun Fleksibel’, a savings account that can be withdrawn at any time.
Ahmad Zulqarnain said managing the accumulation phase for members is the “easy part” while the real challenge lies with decumulation. He sees merits for Malaysia to introduce a “solidarity layer” such as a complimentary national pension “to equalise the old age [care] among society and yes, it is a transfer from one portion of society to another”.
“I’m optimistic in the sense that I don’t expect the system to be perfect, but I do think that we can improve the system,” he said.
“The biggest roadblock to improvements, to be perfectly frank, is really political… to do so, the response does need to be done on a bipartisan basis as much as possible.”
