MALAYSIA: The Employees Provident Fund (EPF) has declared a 6.3% dividend for 2024, the highest in recent years, with a total payout of RM73.24 billion (S$22 billion). While this is undoubtedly good news for many contributors, not all Malaysians will benefit equally. The growing gap between those with substantial savings and those struggling to set aside enough for retirement raises concerns about whether the system is truly serving all Malaysians.
Rising dividends boost savings, but not for everyone
The strong dividend performance of EPF makes it a more attractive savings vehicle, particularly when compared to private retirement schemes. According to economists, individuals are naturally inclined to invest more in funds that offer higher and stable returns, particularly when the risk is low, as stated in an article by Free Malaysia Today (FMT). Unlike unit trusts or other investment schemes, EPF contributors are protected from losses, making it a relatively secure long-term option.
However, while rising dividends may encourage more savings, this primarily benefits those who already have a substantial balance. Economist Geoffrey Williams pointed out that contributors with larger savings see greater returns due to the power of compounding interest, allowing them to reach targeted savings levels much faster.
This creates a clear divide: while wealthier contributors see their retirement funds grow significantly, millions of lower-income Malaysians with meagre balances experience only marginal benefits.
A growing divide between high and low savers
The disparity in EPF savings is alarming. By the age of 54, around 35% of contributors, equivalent to 5.6 million individuals, have less than RM10,000 in their accounts. Such a low balance is far from sufficient to sustain even a modest retirement, forcing many to continue working beyond retirement age or rely on family support. For this group, higher EPF dividends do little to change their long-term financial outlook, as their savings remain too low for the increased returns to make a meaningful difference.
On the other hand, those with higher savings enjoy significant financial advantages. The recent increase in voluntary contributors, from 902,000 in 2023 to 1.2 million in 2024, indicates that some Malaysians are proactively boosting their retirement funds to take advantage of EPF’s strong performance. However, this group is more likely to consist of individuals who already have the financial capacity to save extra, further widening the gap between high and low savers.
Personal impact across income brackets
The effect of EPF’s rising dividends varies depending on income level. Low-income earners, who often struggle to contribute consistently due to financial constraints, are the least likely to benefit. Since their account balances remain small, the higher dividend translates to only a minor increase in their overall savings. The more pressing concern for these individuals is finding ways to sustain daily expenses rather than maximising retirement funds.
Middle-income earners may experience a moderate benefit, particularly if they can make voluntary contributions. However, they often face competing financial obligations, such as housing loans, education costs, and daily living expenses, which may limit their ability to set aside more for retirement. While the higher dividends do provide a boost, it is often not enough to bridge the gap between their savings and the ideal retirement target.
High-income earners stand to gain the most from EPF’s rising dividends. With larger account balances and the ability to make voluntary contributions, they can take full advantage of compounding interest and long-term growth. This group is in the best position to secure a comfortable retirement, further emphasising the gap between those who have enough and those who do not.
Public reactions: Praise, expectations, and concerns
The news of higher EPF dividends has gotten Malaysians talking on Facebook, with a mix of praise and concerns. Some have welcomed the increase with gratitude, acknowledging the management’s efforts in ensuring good returns for contributors. “A great appreciation to the management of EPF for helping the members to receive very good dividends for their retirement,” one commenter wrote. Another praised the government, saying, “This is true government, we see the results.”
However, others believe that more needs to be done to ensure Malaysians can retire with dignity. One user commented, “More dividends are needed to rebuild Malaysian retirement with dignity,” highlighting the ongoing concerns about the adequacy of EPF savings for many contributors.
There are also worries about EPF’s ability to sustain such dividends in the long run, given rising expenses. As one commenter pointed out, “EPF needs to pay higher salary to staff and other expenses, can’t afford to pay high interest to contributors.” This reflects the tension between providing strong returns and maintaining the fund’s sustainability.
Are EPF reforms needed to ensure a fairer future?
The current EPF structure disproportionately benefits those with higher savings, while millions of Malaysians remain at risk of financial insecurity in old age. Economist Rajah Rasiah suggests that the government should consider further increasing EPF dividends to make the fund even more attractive, as reported by FMT. A higher return rate could encourage greater participation and reduce reliance on private retirement schemes, which often lack the same level of security.
Beyond increasing dividends, targeted reforms could help lower-income earners build a more secure retirement. One potential measure is raising the minimum employer contribution for lower-income workers, ensuring that even those with lower wages can accumulate adequate retirement funds.
Additionally, government-matched top-ups for contributors with low balances could provide much-needed financial support. Expanding financial literacy programmes would also be beneficial, helping Malaysians better understand the importance of long-term savings and how to maximise their EPF contributions.
Cautious optimism for the future
While EPF’s rising dividends are a step in the right direction, they highlight an uncomfortable reality: the system currently rewards those who already have substantial savings while offering little relief to those struggling to prepare for retirement. Without targeted reforms, the gap between high and low savers will continue to grow, leaving millions of Malaysians vulnerable in their later years.
It is essential to prioritise the EPF as a tool for fair retirement security rather than letting it evolve into a system that benefits only a privileged few. This approach will create a more inclusive solution, ensuring support reaches those who need it most.
Featured image by Freepik (for illustration purposes only)