KUALA LUMPUR: Employers and the government should introduce a matching programme to raise financial understanding and the desire to save more to prepare Malaysians for retirement.

Principal Financial Group’s executive vice president Thomas Cheong said the level of financial awareness for retirement in Malaysia is low and by 2040, the oldest age group comprising those 65 and above is projected to make up 14.5 per cent of Malaysia’s total population.

Based on United Nations statistics, a country is at the ageing nation status when seven per cent of its total population is 65 years and above, Cheong, who is also Principal Asia president said.

On his matching savings proposal, he said this can be conducted as a one-off incentive.

“If an employee saves a certain amount, the company or the government could match the savings amount at a certain percentage. This diversifies their Employee Provident Fund (EPF) savings and also increases their financial capabilities,” he said in an exclusive interview with Bernama.

He said some companies have partnered Principal Asset Management to conduct such initiatives to boost retirement savings and opines that the practice could be widened and encouraged.

“From our experience, we did see a rise in voluntary savings which directly increased the saver’s future financial stability,” he said.

Cheong said that this initiative could be one of the solutions over the long run as more move into retirement but are inadequately prepared for it. He said only half of those in the labour force are contributing to the EPF or on government pension, leaving the other half, especially those in the informal and gig economy sector, without old-age pension coverage.

He emphasised that only three per cent of Malaysian retirees could afford to retire and two million in the gig economy do not have a solid retirement plan. This situation is “worrisome”, he said.

Based on EPF’s latest study, about 6.6 million contributors have less than RM10,000 in savings.

“With Malaysians having a longer lifespan, inflation and rising healthcare costs, Malaysians require additional retirement savings to complement their mandatory savings,” he said.

He added that Principal is also expanding its financial literacy programmes by collaborating with local higher learning institutions to educate students on basic money management and investing.

He added that parents should teach their children about saving and money habits from young to ensure that they “do not get lost along the way” after getting their first salary and loan/credit.

In light of this, Principal has expanded its retirement offering by providing a RM100 entry point for private retirement scheme (PRS) funds.

Investors could enjoy personal tax relief for contributions up to RM3,000 annually, equivalent of up to RM840 tax relief annually.

The EPF recently said that the “bare minimum” to retire over the next 20 to 30 years is RM1 million. It also said that Bumiputera and Indian contributors’ savings have dropped significantly following the multiple COVID-19 pandemic-related withdrawals totalling RM145 billion over the past two years.

Bumiputera EPF members saw a whopping 70 per cent drop in median savings to RM4,900 as at December 2022, from RM15,500 as at April 2020. Indian EPF members’ median savings declined 40 per cent to RM14,900 from RM25,700 during the same period.

To help increase depositors’ savings, the government under Budget 2023 also contributed RM500 to EPF members aged between 40 and 54 who have less than RM10,000 in their Account 1.

Principal Asset Management Bhd is a joint venture between Principal Financial Group and CIMB Group Holdings Bhd. It focuses on investment management and total retirement solutions. - Bernama