A POSSIBLE leap from 13% to 20% in employer contributions to the Employees Provident Fund (EPF) will represent a significant increase of almost 54%. The extra amount will help to address the issue of low retirement savings among Malaysian workers.
According to a survey conducted by the EPF in 2019, almost two-thirds of EPF members aged 54 and below had less than RM50,000 in their retirement savings. This is far below the minimum amount required for a comfortable retirement, which is estimated at around RM240,000.
With the increase in employer contributions, concerns over inadequate retirement savings can be addressed, and greater financial security for employees can be ensured. This can also have broader social benefits, such as reducing the burden on government-funded retirement schemes and improving the overall well-being of the population.
However, the increase may pose challenges for employers by raising their labour costs, which can potentially impact their profitability.
In addition, some employers may need to adjust their salary structures to accommodate the higher contribution rate. This can lead to dissatisfaction among employees, who may see a reduction in their take-home pay.
The increase in the contribution rate may also discourage employers from hiring new workers. They may be hesitant to hire additional staff due to the higher labour costs. This can lead to a slowdown in job creation and economic growth in Malaysia.
Whether the increase is extreme or not depends on various factors, including the economy, the competitiveness of businesses and the social welfare needs of the population.
The proposal is a significant policy move that may have far-reaching implications for both employees and businesses in the country. If it is brought to the Cabinet for discussions, there are several key points that are likely to be considered.
One of the main considerations
is the impact on businesses, particularly small and medium-sized enterprises (SMEs).
As SMEs form a significant portion of the economy, an increase in EPF contributions can have a significant impact on their financial viability. The government will need to assess if businesses can afford the increased contributions and how it may affect their competitiveness.
The proposal can also affect discussions and negotiations with regards to the minimum wage in Malaysia as both issues are related to the overall compensation package of employees and cost of doing business for employers.
If employers are required to bear the additional cost of EPF contributions, they may have less for salaries or to implement the minimum wage policy. This can create challenges in negotiations between employers and employees as well as between the government and industry representatives.
However, it is important to note that increasing EPF contributions and implementing the minimum wage policy are both important in ensuring that employees are fairly compensated and able to meet their basic needs.
Both issues are also related to improving the overall economic welfare of the country as higher wages and retirement savings can lead to increased consumer spending and economic growth.
The long-term financial sustainability of EPF is also an important consideration. The entity has a significant obligation to its contributors, and the government will need to assess whether the increased contributions are sufficient to support the fund’s future obligations while exploring other measures to ensure its financial sustainability.
Public perception is also a key consideration. The government will need to examine how the proposal is likely to be received by different stakeholders, including EPF contributors, businesses and the public.
If the proposal is implemented, the government will need to find a balance between the needs of employees and employers.
One option is to implement the increase in phases. This will give employers time to adjust and mitigate the financial impact on their businesses.
The government can also provide incentives or tax breaks for employers who comply with the increased contribution rates, to help ease the burden of the additional cost.
Another approach would be for the government to engage with employers and business associations to better understand their concerns and needs. This can involve holding consultations and dialogues with representatives to come up with solutions that work for both sides.
By actively engaging with employers, the government can help build support for the proposal and increase the chances of a successful implementation.
The government can also explore alternative funding sources to support the increased contributions. For example, they can redirect some of the revenue from a new tax or the collection of unpaid taxes to support the proposal. This will help alleviate the financial burden on employers while achieving the objective of increased EPF contributions.
In conclusion, the proposal is a complex issue that will require careful evaluation and consideration of multiple factors. While it can improve the financial security of EPF contributors, the government will need to weigh the potential benefits and costs before deciding.
Ultimately, any decision will need to be guided by the goal of promoting sustainable economic growth and social welfare in Malaysia.
Dr Paul Anthony Mariadas is a Lecturer for the School of Accounting and Finance at Taylor’s Business School, Faculty of
Business and Law, Taylor’s University. Comments: letters@thesundaily.com
