Sunday November 16, 2008
Little goes a long way for some
ACCOUNTS clerk Shalina Amin, 28, looks forward to taking home extra money in her pay packet when her contribution to the Employees Provident Fund (EPF) is slashed to 8% from 11% next January.
“As you know, the cost of living is high now, and my monthly expenses have gone up tremendously in the last year. Having extra money in my pocket will really help,” says the mother of two.
However, with her basic monthly salary at RM1,400, it means that the extra Shalina would receive is about RM42.
On the losing end: A reduction in the monthly contribution will mean less retirement savings for Malaysian workers who already have insufficient savings to see them comfortably through their old age.
The amount is small, she admits, but it is better than nothing.
The cut in employees’ EPF contribution by 3% will increase disposable income and thus stimulate domestic consumption and support economic growth.
The response to the measure, however, has been mixed.
For many in the lower income bracket, the cut is welcomed but most agree that it is too small to be of real help.
For Shalina, the extra money will mean the ability to pay their utility bills on time and prepare for emergencies, not buy more things.
“What will help more is if prices of goods are reduced some more. Can the Government do that?” she asks, adding that despite the lowering of petrol prices recently, the prices of other goods and services have not come down.
Rock quarry worker Azizi Osman, 32, also welcomes the cut in EPF, only because in the last year, his wages have been reduced a lot due to the reduced market demand.
“My basic pay is RM49.50 per day and I was able to take home up to RM1,500 with overtime. But in June, we were told that we couldn’t do any overtime; recently, they told us that from next January, we can only work four days a week because orders for our product have gone down. So yeah, whatever extra money we can get will be good,” he adds.
What is guaranteed is that a reduction in the monthly contribution will mean less retirement savings. And as EPF and other concerned parties have often forewarned, most Malaysian workers have insufficient savings to see them comfortably through their old age.
Sales manager M. Anucia, from Penang, says that she is worried her retirement savings will be inadequate if her EPF contribution is reduced.
Anucia, 33, who earns around RM3,200 per month says the amount received from the reduction is too small to help cover her monthly expenses but if left in the EPF savings, will grow into a substantial sum.
“If I take the 3%, it means I have an extra RM96 but that money will be used up just like that, especially now with high prices of things. I spend about RM88 a month on my baby’s milk formula and RM120 on her nappies. So yes, I can use it to help cover that cost but at the end of the day, it will go in the rubbish bin. Now, if I keep the money in EPF, it will earn about 5% a year and by the time I retire, I’ll have thousands,” she shares.
Another objection to the EPF reduction measure, which will be effective from January 2009 to December 2010, is the proposed procedure: automatic reduction unless the contributor fills up a form to maintain their contribution at 11%.
One irate contributor, a private college lecturer who only wants to be known as Lee, 39, stresses that EPF should promote saving, not spending.
“The main purpose of EPF savings is to assure that all members can afford a reasonable quality of life upon their retirement. The EPF must protect members’ interests, not the country’s.
“At the very least, they should advise us on the pros and cons of a reduced deduction,” he argues.
Lee feels that the EPF should reconsider their procedure.
“If it is not a compulsory deduction, the better way would be for members who require the reduction to fill in a form, not the other way around!” he says.
Sunday November 16, 2008
More now, less tomorow
By JOSEPH LOH, HARIATI AZIZAN AND RASHVINJEET S. BEDI
The move the reduce the Employees Provident Fund contributions from 11% to 8% on a ‘voluntary basis’ has irked some although it is welcomed by others. The sum that will be going into everyone’s pocket will, however, do the country some good.
THE LAST time members’ contribution to the Employees Provident Fund (EPF) was reduced in 2003 by 2%, approximately 550,000 members chose to retain it at the original higher level. That translates to a mere 11% of the total number of active contributors at the time.
"The bottom line is that the smartest, most numerate people in Malaysia are opting for 11% while the uninformed will probably permit the default" - RAJEN DEVADASON
This group probably constitutes members who are determined to save more for their retirement and are willing to pick up the pen and fill up the form to retain their monthly contribution of 11%. Or perhaps their company made it easy for them to do so.
But while many really need and welcome the little extra, the majority of EPF contributors tend to be nonchalant about the exercise and couldn’t be bothered with filling up the form.
While the reduction in EPF contribution is said to be “voluntary”, the move has met with some resistance as it places the burden of filling up the form on those who want to maintain their contribution.
EPF public relations senior manager Nik Affendi Jaafar declined to be drawn into the debate that those who want to retain their commitment shouldn’t be the ones “penalised”, except to say that the forms would be available from Dec 1.
“Members who wish to maintain the contribution rate at 11%, may do so by filling up Form KWSP 17A (AHL).”
He says minor amendments are being made to the form and the form will be available at all EPF branches and can be downloaded at the EPF website from Dec 1 onwards.
“It is a simple form that needs to be filled in only once. All members need to do is to submit the completed forms to their respective employers for onward submission to the EPF,” says Nik.
The automatic reduction will be in effect for two years from January 2009. According to Deputy Prime Minister and also Finance Minister Datuk Seri Najib Tun Razak, if all contributors choose to reduce their contributions, the 3% would amount to RM4.8bil annually.
As of June this year, there are 5.5 million active contributors to the EPF.
The Malaysian Trade Union Congress (MTUC) is one of many groups opposing the measure.
“They mention that it is voluntary but it should be the other way round to avoid confusion and unnecessary hardship,” says its president Syed Shahir Syed Mohamud.
He believes that retirement plans for many will be jeopardised.
“In fact, some people want to increase their contribution,” says Shahir, adding that reducing the EPF contribution would affect the dividends earned by employees.
“The employees are going to lose on compounded interest and that will have a bearing on them,” he says.
For example, a 35-year-old person with a RM3,000 monthly salary would be reducing his EPF contribution by RM2,160 over the course of two years. Assuming that a 5% dividend is paid out annually with the compound element over a period of 20 years, he will be RM5,500 “poorer” when he retires. And this is not taking into consideration past (one-year period in 2001 and 2003) and future exercises of a similar nature.
But what is good for the pocket is even better for the retail sector.
Rajen Devadason, CFP, a Securities Commission-licensed financial planner with MAAKL Mutual Bhd, and CEO of RD WealthCreation Sdn Bhd believes this 3% can prove to be a stimulus to the retail sector.
“Retailers will benefit mainly from this measure. The overall health of the economy will also perk up a tiny bit,” says Devadason.
But is the economy in such a bad shape that it warrants such a measure? “Malaysia is holding up better than most other countries. But our economy’s growth will nonetheless also decelerate in the months ahead. This EPF cut is just one macroeconomic ‘bullet’ in our government’s arsenal to combat the worst effects of the global recession,” says Devadason.
Nevertheless, he recommends his clients to retain their contributions at 11%.
“The bottom line is that the smartest, most numerate people in Malaysia are opting for 11%, while the uninformed will probably permit the default,” he says.
Over the two years of the cut, a person who accepts the 8% default option will lose 72% of one whole month’s average gross income.
“The EPF is a great investment benefit to Malaysians. I urge all my clients – even business owners – to contribute to it. On top of that, additional non-EPF personal savings and investments should be carried out,” says Devadason.
The contributions are invested by EPF in a number of approved financial instruments to generate income including Government securities, money market instruments and property.
Legally, the EPF is obligated to provide 2.5% dividends. In the past three years, they have provided dividends of more than 5%. Even during the economic crisis of 1997 to 1998, the dividends provided were 6.7%.
“As long as the money flows into EPF first, contributors can invest in unit trusts on a regular basis. Because of EPF’s pro-active actions, those who invest in unit trusts using their EPF funds now pay much lower commissions on that portion than they do when they invest their discretionary funds,” says Devadason.
Devadason says that we are moving into a cash-is-king environment, therefore urging people to work harder and save more.
“The public should invest very carefully with an eye to elevating long-term passive income inflows from the highest quality dividend-paying stocks and dividend funds. For those with extra deep pockets, buying choice pieces of rental property would also be smart. However, focus on getting out of personal debt first,” he says.
A macro perspective
On a larger scale, it is necessary to make sense of how much this would affect the Malaysian economy.
Dr Yeah Kim Leng, chief economist at the Ratings Agency of Malaysia (RAM) says that of the RM4.8bil that will be added to the pockets of Malaysians, the marginal propensity of what will be saved must be taken against what is spent.
“Generally, people tend to spend about 60% and save the other 40%. This will go directly into consumer spending, and this will add to private consumption.”
Dr Yeah calculates that if 60% of RM4.8bil is spent, this would amount to about RM2.9bil. Using the end 2008 figure of RM660bil as a base for Malaysia’s Gross Domestic Product (GDP), the additional RM2.9bil will give a boost of 0.44% to the overall GDP.
One of the most immediate effects, Dr Yeah informs, is that this will boost consumer confidence.
“This will give a boost so consumer spending can be maintained, and if we can achieve a growth of 6% to 7% next year, we can achieve modest growth in the face of adverse economic conditions.”
Dr Yeah adds that the key is sustaining consumer confidence.
“Malaysia has sufficient liquidity and savings, as we have experienced strong growth of about 9% to 10% over the past six years. Companies have been accumulating wealth, and would have the capacity to weather any economic slowdown.
“Confidence is the key factor, so banks will continue to lend money and support businesses, and it is important to ensure that both businesses and individuals do not cut back on their spending too drastically,” he says.
Dr Yeah explains that this monetary boost is a kind of incentive and says, “The spill over effect of this is that financial markets and stocks can stabilise, so massive wealth destruction can be stopped.”
It should be noted that the additional RM4.8bil that goes straight into the pockets of the people is different from the Government’s RM7bil economic stimulus package announced by Finance Minister Datuk Seri Najib Tun Razak that will be spent on a wide range of projects, from the LRT to repairing of houses belonging to the poor.
“You have to see which projects the money goes into and the speed of the implementation. The extent of the multiplier will depend on the linkages, and how this spending will generate value-added activity to the economy,” he says, adding that it will vary across the types of projects, for example, the building of roads, and in turn if these facilities are used for productive purposes.
“There may be an increase in the number of people employed or in services available, and hopefully increase businesses and employment which will add to productive capacity,” says Dr Yeah.
Sunday November 16, 2008
Dilemma for EPF contributors
KUALA LUMPUR: More money to use now means less for one’s retirement. This is the dilemma Employees Provident Fund contributors face should they decide to opt to have their monthly contribution reduced from the mandatory 11% to the “voluntary” 8%.
The government’s decision to adopt this measure to help Malaysians tide the rise in prices of goods and services and the economic downturn is heartily welcomed by those in the lower income group and struggling to pay bills.
But there are many who prefer to stick to the 11% deduction and tighten their belts momentarily.
This group is also irked by the “burden” of having to fill up an EPF form – those who do not will be deemed to be agreeable to contributing 8% for two years effective Jan 1.
Under the new scheme, a 35-year-old employee with a RM3,000 monthly salary would be able to take home an extra RM90 in his monthly pay packet, which amounts to RM2,160 over two years.
However, assuming that a 5% dividend is paid out annually with the compound element over a period of 20 years until he turns 55, he will be RM5,500 “poorer” when he retires.
If his monthly income for the next two years is RM5,000, he would lose out on a total savings of RM9,200 in his EPF upon retirement.
As it is, the EPF has raised concerns about Malaysians not having enough savings to see them through 20 years past retirement, much less lead a comfortable life.
In a study by the EPF last year, the average contributor has only RM106,000 in his savings while one would need a projected sum of about RM747,000 (taking into consideration inflation rates) if one were to live for 25 years after retirement.
Little goes a long way for some
ACCOUNTS clerk Shalina Amin, 28, looks forward to taking home extra money in her pay packet when her contribution to the Employees Provident Fund (EPF) is slashed to 8% from 11% next January.
“As you know, the cost of living is high now, and my monthly expenses have gone up tremendously in the last year. Having extra money in my pocket will really help,” says the mother of two.
However, with her basic monthly salary at RM1,400, it means that the extra Shalina would receive is about RM42.
On the losing end: A reduction in the monthly contribution will mean less retirement savings for Malaysian workers who already have insufficient savings to see them comfortably through their old age.
The amount is small, she admits, but it is better than nothing.
The cut in employees’ EPF contribution by 3% will increase disposable income and thus stimulate domestic consumption and support economic growth.
The response to the measure, however, has been mixed.
For many in the lower income bracket, the cut is welcomed but most agree that it is too small to be of real help.
For Shalina, the extra money will mean the ability to pay their utility bills on time and prepare for emergencies, not buy more things.
“What will help more is if prices of goods are reduced some more. Can the Government do that?” she asks, adding that despite the lowering of petrol prices recently, the prices of other goods and services have not come down.
Rock quarry worker Azizi Osman, 32, also welcomes the cut in EPF, only because in the last year, his wages have been reduced a lot due to the reduced market demand.
“My basic pay is RM49.50 per day and I was able to take home up to RM1,500 with overtime. But in June, we were told that we couldn’t do any overtime; recently, they told us that from next January, we can only work four days a week because orders for our product have gone down. So yeah, whatever extra money we can get will be good,” he adds.
What is guaranteed is that a reduction in the monthly contribution will mean less retirement savings. And as EPF and other concerned parties have often forewarned, most Malaysian workers have insufficient savings to see them comfortably through their old age.
Sales manager M. Anucia, from Penang, says that she is worried her retirement savings will be inadequate if her EPF contribution is reduced.
Anucia, 33, who earns around RM3,200 per month says the amount received from the reduction is too small to help cover her monthly expenses but if left in the EPF savings, will grow into a substantial sum.
“If I take the 3%, it means I have an extra RM96 but that money will be used up just like that, especially now with high prices of things. I spend about RM88 a month on my baby’s milk formula and RM120 on her nappies. So yes, I can use it to help cover that cost but at the end of the day, it will go in the rubbish bin. Now, if I keep the money in EPF, it will earn about 5% a year and by the time I retire, I’ll have thousands,” she shares.
Another objection to the EPF reduction measure, which will be effective from January 2009 to December 2010, is the proposed procedure: automatic reduction unless the contributor fills up a form to maintain their contribution at 11%.
One irate contributor, a private college lecturer who only wants to be known as Lee, 39, stresses that EPF should promote saving, not spending.
“The main purpose of EPF savings is to assure that all members can afford a reasonable quality of life upon their retirement. The EPF must protect members’ interests, not the country’s.
“At the very least, they should advise us on the pros and cons of a reduced deduction,” he argues.
Lee feels that the EPF should reconsider their procedure.
“If it is not a compulsory deduction, the better way would be for members who require the reduction to fill in a form, not the other way around!” he says.
Sunday November 16, 2008
More now, less tomorow
By JOSEPH LOH, HARIATI AZIZAN AND RASHVINJEET S. BEDI
The move the reduce the Employees Provident Fund contributions from 11% to 8% on a ‘voluntary basis’ has irked some although it is welcomed by others. The sum that will be going into everyone’s pocket will, however, do the country some good.
THE LAST time members’ contribution to the Employees Provident Fund (EPF) was reduced in 2003 by 2%, approximately 550,000 members chose to retain it at the original higher level. That translates to a mere 11% of the total number of active contributors at the time.
"The bottom line is that the smartest, most numerate people in Malaysia are opting for 11% while the uninformed will probably permit the default" - RAJEN DEVADASON
This group probably constitutes members who are determined to save more for their retirement and are willing to pick up the pen and fill up the form to retain their monthly contribution of 11%. Or perhaps their company made it easy for them to do so.
But while many really need and welcome the little extra, the majority of EPF contributors tend to be nonchalant about the exercise and couldn’t be bothered with filling up the form.
While the reduction in EPF contribution is said to be “voluntary”, the move has met with some resistance as it places the burden of filling up the form on those who want to maintain their contribution.
EPF public relations senior manager Nik Affendi Jaafar declined to be drawn into the debate that those who want to retain their commitment shouldn’t be the ones “penalised”, except to say that the forms would be available from Dec 1.
“Members who wish to maintain the contribution rate at 11%, may do so by filling up Form KWSP 17A (AHL).”
He says minor amendments are being made to the form and the form will be available at all EPF branches and can be downloaded at the EPF website from Dec 1 onwards.
“It is a simple form that needs to be filled in only once. All members need to do is to submit the completed forms to their respective employers for onward submission to the EPF,” says Nik.
The automatic reduction will be in effect for two years from January 2009. According to Deputy Prime Minister and also Finance Minister Datuk Seri Najib Tun Razak, if all contributors choose to reduce their contributions, the 3% would amount to RM4.8bil annually.
As of June this year, there are 5.5 million active contributors to the EPF.
The Malaysian Trade Union Congress (MTUC) is one of many groups opposing the measure.
“They mention that it is voluntary but it should be the other way round to avoid confusion and unnecessary hardship,” says its president Syed Shahir Syed Mohamud.
He believes that retirement plans for many will be jeopardised.
“In fact, some people want to increase their contribution,” says Shahir, adding that reducing the EPF contribution would affect the dividends earned by employees.
“The employees are going to lose on compounded interest and that will have a bearing on them,” he says.
For example, a 35-year-old person with a RM3,000 monthly salary would be reducing his EPF contribution by RM2,160 over the course of two years. Assuming that a 5% dividend is paid out annually with the compound element over a period of 20 years, he will be RM5,500 “poorer” when he retires. And this is not taking into consideration past (one-year period in 2001 and 2003) and future exercises of a similar nature.
But what is good for the pocket is even better for the retail sector.
Rajen Devadason, CFP, a Securities Commission-licensed financial planner with MAAKL Mutual Bhd, and CEO of RD WealthCreation Sdn Bhd believes this 3% can prove to be a stimulus to the retail sector.
“Retailers will benefit mainly from this measure. The overall health of the economy will also perk up a tiny bit,” says Devadason.
But is the economy in such a bad shape that it warrants such a measure? “Malaysia is holding up better than most other countries. But our economy’s growth will nonetheless also decelerate in the months ahead. This EPF cut is just one macroeconomic ‘bullet’ in our government’s arsenal to combat the worst effects of the global recession,” says Devadason.
Nevertheless, he recommends his clients to retain their contributions at 11%.
“The bottom line is that the smartest, most numerate people in Malaysia are opting for 11%, while the uninformed will probably permit the default,” he says.
Over the two years of the cut, a person who accepts the 8% default option will lose 72% of one whole month’s average gross income.
“The EPF is a great investment benefit to Malaysians. I urge all my clients – even business owners – to contribute to it. On top of that, additional non-EPF personal savings and investments should be carried out,” says Devadason.
The contributions are invested by EPF in a number of approved financial instruments to generate income including Government securities, money market instruments and property.
Legally, the EPF is obligated to provide 2.5% dividends. In the past three years, they have provided dividends of more than 5%. Even during the economic crisis of 1997 to 1998, the dividends provided were 6.7%.
“As long as the money flows into EPF first, contributors can invest in unit trusts on a regular basis. Because of EPF’s pro-active actions, those who invest in unit trusts using their EPF funds now pay much lower commissions on that portion than they do when they invest their discretionary funds,” says Devadason.
Devadason says that we are moving into a cash-is-king environment, therefore urging people to work harder and save more.
“The public should invest very carefully with an eye to elevating long-term passive income inflows from the highest quality dividend-paying stocks and dividend funds. For those with extra deep pockets, buying choice pieces of rental property would also be smart. However, focus on getting out of personal debt first,” he says.
A macro perspective
On a larger scale, it is necessary to make sense of how much this would affect the Malaysian economy.
Dr Yeah Kim Leng, chief economist at the Ratings Agency of Malaysia (RAM) says that of the RM4.8bil that will be added to the pockets of Malaysians, the marginal propensity of what will be saved must be taken against what is spent.
“Generally, people tend to spend about 60% and save the other 40%. This will go directly into consumer spending, and this will add to private consumption.”
Dr Yeah calculates that if 60% of RM4.8bil is spent, this would amount to about RM2.9bil. Using the end 2008 figure of RM660bil as a base for Malaysia’s Gross Domestic Product (GDP), the additional RM2.9bil will give a boost of 0.44% to the overall GDP.
One of the most immediate effects, Dr Yeah informs, is that this will boost consumer confidence.
“This will give a boost so consumer spending can be maintained, and if we can achieve a growth of 6% to 7% next year, we can achieve modest growth in the face of adverse economic conditions.”
Dr Yeah adds that the key is sustaining consumer confidence.
“Malaysia has sufficient liquidity and savings, as we have experienced strong growth of about 9% to 10% over the past six years. Companies have been accumulating wealth, and would have the capacity to weather any economic slowdown.
“Confidence is the key factor, so banks will continue to lend money and support businesses, and it is important to ensure that both businesses and individuals do not cut back on their spending too drastically,” he says.
Dr Yeah explains that this monetary boost is a kind of incentive and says, “The spill over effect of this is that financial markets and stocks can stabilise, so massive wealth destruction can be stopped.”
It should be noted that the additional RM4.8bil that goes straight into the pockets of the people is different from the Government’s RM7bil economic stimulus package announced by Finance Minister Datuk Seri Najib Tun Razak that will be spent on a wide range of projects, from the LRT to repairing of houses belonging to the poor.
“You have to see which projects the money goes into and the speed of the implementation. The extent of the multiplier will depend on the linkages, and how this spending will generate value-added activity to the economy,” he says, adding that it will vary across the types of projects, for example, the building of roads, and in turn if these facilities are used for productive purposes.
“There may be an increase in the number of people employed or in services available, and hopefully increase businesses and employment which will add to productive capacity,” says Dr Yeah.
Sunday November 16, 2008
Dilemma for EPF contributors
KUALA LUMPUR: More money to use now means less for one’s retirement. This is the dilemma Employees Provident Fund contributors face should they decide to opt to have their monthly contribution reduced from the mandatory 11% to the “voluntary” 8%.
The government’s decision to adopt this measure to help Malaysians tide the rise in prices of goods and services and the economic downturn is heartily welcomed by those in the lower income group and struggling to pay bills.
But there are many who prefer to stick to the 11% deduction and tighten their belts momentarily.
This group is also irked by the “burden” of having to fill up an EPF form – those who do not will be deemed to be agreeable to contributing 8% for two years effective Jan 1.
Under the new scheme, a 35-year-old employee with a RM3,000 monthly salary would be able to take home an extra RM90 in his monthly pay packet, which amounts to RM2,160 over two years.
However, assuming that a 5% dividend is paid out annually with the compound element over a period of 20 years until he turns 55, he will be RM5,500 “poorer” when he retires.
If his monthly income for the next two years is RM5,000, he would lose out on a total savings of RM9,200 in his EPF upon retirement.
As it is, the EPF has raised concerns about Malaysians not having enough savings to see them through 20 years past retirement, much less lead a comfortable life.
In a study by the EPF last year, the average contributor has only RM106,000 in his savings while one would need a projected sum of about RM747,000 (taking into consideration inflation rates) if one were to live for 25 years after retirement.
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