Malaysia’s retirement challenge is becoming more about whether people are financially and psychologically prepared to sustain themselves through longer lifespans and rising living costs, and less about dividends paid by the Employees Provident Fund (EPF), the nation’s biggest pension fund.
It was an issue highlighted during a panel session at Asia Asset Management’s 14th Annual Malaysia Roundtable in Kuala Lumpur on May 5.
Panel members pointed out that Malaysia has one of the stronger mandatory retirement systems in Asia.
“We should recognise that our EPF is doing an excellent job. The fact that 24% of wages are contributed to retirement savings, and that it has managed the funds well, means Malaysia has actually done very well in this respect,” said Joseph Cherian, chief executive, president and dean of the Asia School of Business.
But panellists warned that many Malaysians still underestimate how much they need for retirement, and how quickly the money they saved can run out.
Taufiq Iskandar, chief executive officer of Private Pension Administrator Malaysia (PPA), the administrator of the Private Retirement Scheme (PRS), noted that only about 40% now meet the EPF’s basic savings threshold, leaving the majority financially vulnerable in retirement.
He said even retirees who have 1 million ringgit (US$249,500) saved could struggle to sustain their lifestyles over the long term.
EPF alone isn’t enough
Panel members pointed to a growing “retirement illusion”, where individuals see a large lump sum in their retirement accounts and assume it will be sufficient, without fully understanding how inflation, longevity and monthly spending can eat into the savings.
“There is money illusion. People see a large pot of money and think it is enough,” Cherian said.
Ageing demographics could intensify the pressure in coming years, especially as family support structures weaken and more workers shift into informal or gig-based employment.
The United Nations has projected that Malaysia will become an ageing nation by 2030, with the number of people 65 years and older making up 7% of the population.
Although the Malaysian pension system isn’t in “deep crisis” now, it does need structural changes, according to Ng Jit Seng, chief operating officer of Principal Asset Management
“I would not call it a very deep crisis yet, but we are entering a phase where structural changes and stronger savings behaviour are needed,” he said.
He noted that many Malaysians rely heavily on just the EPF instead of building broader retirement portfolios.
“EPF should form the core foundation of retirement savings, while PRS and other investments should complement it,” he said.
For Ismitz Matthew De Alwis, executive director and chief executive officer of Kenanga Investors, financial literacy is a big concern.
“I do not think there is a shortage of investment products or vehicles. The key issue is financial literacy,” he said.
He observed that many Malaysians, especially younger employees and gig workers, do not have long-term investing habits or the discipline to save consistently.
Fees and ETFs
The panel also debated the hidden impact of investment costs on long-term retirement savings.
Tan Haw Sin, founder and managing director of Riskk.Com, warned that high management fees could erode retirement wealth over time, particularly for long-term retirement products.
“At 2% annual fees over 30 years, you could lose more than half your wealth accumulation. The cumulative cost of wrapping and managing funds over the long term is actually very, very high,” he said.
He said lower-cost investments such as exchange-traded funds could help improve long-term retirement outcomes, but that ETF adoption in Malaysia is low compared with more developed markets.
According to Taufiq, funds on the PRS platform charge reasonable fees and that fee disclosures are very transparent. He said the PPA and Securities Commission Malaysia are actively working to further reduce costs.
He also said the PRS ecosystem is being restructured to become more account-based and could eventually include ETFs as investment options.
Ultimately though, the broader challenge may be more behavioural.
“Retirement is one of those things that creeps up on you. When you are young, you feel invincible, and before you know it, retirement arrives,” Ismitz said.
