The Centre recently concluded a four-part research series on student debt in Malaysia and would like to extend the conversation on student loan reforms by responding to Sulaiman’s proposal.

While we agree with him that students of various ethnic groups and social status have benefited from student loans, we take issue with the suggestion to involve the banking system in designing financial assistance for students.

Here is an example from a local bank’s educational loan: a student (or his parents) with an income greater than RM 2,000 a month may be eligible to borrow up to RM1 million.

The greater the amount borrowed, the higher the collateral needed. What happens if a B40 household borrower defaults?

The bank would then have the right to seize his collateral, with severe repercussions on his family’s financial wellbeing since the parents would probably act as the guarantor.

We estimate that, on average, students enrolling in a local public university or a local private university will accumulate student debt of RM26,600 and RM56,120 respectively for a four-year degree.

Our survey, as well as data from the National Higher Education Fund Corporation (PTPTN) and Department of Statistics, show that many borrowers do not have sufficient income to make steady repayments.

Here is how dire the situation is: the majority of new degree graduates earned between RM1,001 and RM1,500 in 2020, according to data.

Almost 60 per cent of graduates were or remained unemployed a year after graduation in 2018 (according to a graduate tracer study data), and more than one-third of borrowers surveyed by PTPTN in 2019 earned below RM2,000 a month.

The other problem is the significant interest rate gap between PTPTN’s borrowings and its lending, which makes for an unsustainable model.

PTPTN has acknowledged this fact with chairman Datuk Wan Saiful Wan Jan writing: “PTPTN borrows from the financial market at, on average, four to five per cent interest rate, while it charges borrowers just one per cent.

“The difference has been compounding year on year for 20 years, contributing to PTPTN’s mountain of debt.”

We concur with Dr Sulaiman and Wan Saiful that the loan system is unsustainable. But getting banks more involved does not resolve outstanding issues.

We propose that the government and stakeholders consider a multi-pronged approach that is more sustainable yet sensitive to the socioeconomic context.

They include providing direct subsidy to B40 students, creating lifelong education savings accounts that are set up automatically for newborns, implementing income-based repayment with appropriate threshold and tiering, and shifting enrolment to technical and vocational education and training (TVET) and micro credentials.

These policy recommendations are discussed in detail in our Indebted Generation research series, accessible at www.centre.my.

OOI KOK HIN

The Centre think tank

Kuala Lumpur

She said personal loans include secured or unsecured loans from banking institutions, personal loans from money lenders other than banking institutions and friendly loans from individuals.

Apart from that, she said that bankruptcy cases involving business loans are 17.05%, housing loans are 8.28% and credit card debt is 6.35%.

“The data, in terms of age, from 2019 to 2023, show that the 35-44-year-old age group was found to have the highest number of bankruptcy cases, at 13,073 people, compared with only 107 individuals under the age of 25, while those aged 55 and over were 5,297 people.

“Based on gender, there are more bankrupt cases among men at 25,104, compared with 8,912 women. Also, Malays recorded the most bankrupt cases with 19,791 people,” she said.
 
Azalina said this when winding up the debate on the Insolvency (Amendment) Bill 2023 before it was passed by the Dewan Rakyat today after being debated by 18 MPs from the government and the opposition.

Earlier, during the debate session, Khoo Poay Tiong (PH-Kota Melaka) wanted an explanation of the types of personal loans which have caused many individuals to go bankrupt and suggested that the payment rate of 5 to 7% to the Malaysian Department of Insolvency be reviewed.

Meanwhile, Muhyiddin Yassin (PN-Pagoh), during the debate session, raised bankruptcy statistics involving racial breakdowns, stating that for the year 2019-2023, Malays recorded the highest number of bankruptcy cases at 58.28%, followed by Chinese at 24.96%. Indians recorded 7.91%, while others is at 8.67%.

Muhyiddin also proposed that the government put emphasis on efforts to help bankrupt individuals to rise and rebuild their economy, besides not letting their bankruptcy status remain for life.

The Insolvency (Amendment) Bill 2023, among other things, provides that bankrupt individuals aged 70 and above and those mentally ill are eligible for automatic discharge through the issuance of the insolvency director-general’s certificate of discharge, in addition to improving the provisions of automatic discharge.

In the meantime, Azalina said that bankrupt individuals should be given a second chance to rebuild their lives and contribute to the country’s economic development.

If you have a fully paid-up home or an apartment, you escape the burden of rising rents. If you have another home under your name, then you may earn an income. 

If you have invested in an enterprise, then you may receive a recurring income. But businesses go up and down — the very nature of enterprise risk that you sign up to when you start a business, or join forces with others. 

If you’re retiring in 2030, you will join the retiree ranks as Malaysia officially becomes an ageing nation. In six years, Malaysia’s population aged 60 years and over will make up 15% or more of the total population. 

In the information accompanying the 2023 dividend announcement, EPF reminded us that Malaysia is fast ageing. By 2043, it would have transitioned into an aged nation; and super aged by 2057. 

To many preparing to retire, the forced savings during our active working years make up a good part of our retirement plan. What is the EPF? In its own words, it is, first and foremost, a retirement fund mandated to safeguard members’ savings for their future retirement needs and well-being.

However, anecdotal examination of numbers tells us that a good number of Malaysians won’t waltz into retirement, but rather see themselves shoved into that category, financially ill-prepared. 

We repeat what we quoted in this same column last week. Only one in five of EPF’s total members have reached basic savings goals, as tagged by the fund. Beginning 2019, the basic savings quantum — the number they need to accumulate when they hit 55 — was set at RM240,000. This would be equivalent to a monthly retirement income of RM1,000 for 20 years or 240 months, from age 55 to 75. 

What about the rest? They may still have time to catch up, and bump up their forced savings in the EPF. Even then, imagine living on RM1,000 a month? You have yet to take inflation into account. 

Of course, some economists and analysts tell us that EPF is not the only avenue that one needs to look at when we talk about retirement. 

When commenting on the introduction of EPF’s third account, an economist recently told Bernama: “We have policies on education, healthcare, entrepreneurship and financial assistance in the form of subsidies, cash transfers, scholarships, grants, and microfinancing, among others, that will provide the right platform for Malaysians to lead better lives. 

“These policies are governed by various ministries and government agencies. Therefore, we need to adopt a broader perspective on economic development.” 

True. EPF is definitely not the one and only factor when you retire in Malaysia, but it plays a major role for many. 

One thing is certain. Retirement is scary for those ill-prepared. In Malaysia, it is a ticking time bomb. It is not just about enough money in the pocket, but so much more. 

Population ageing is the 21st century’s dominant demographic phenomenon, according to one study on global demography of ageing. The phenomenon of population ageing, which is unprecedented in human history, brings with it sweeping changes in population needs and capacities, with potentially significant implications for employment, savings, consumption, economic growth, asset values and fiscal balance, it added. 

At the same time, ageing populations force nations to confront the problem of an increasing number of mentally incapacitated elderly, highlighted another study. Neurologic disorders such as dementia, depression and strokes are common for the elderly and often cause loss of mental capacity, it said. Once you step into that domain, you are faced with issues like guardianship and decision-making by the guardians. 

There is also the issue of health and long-term care. Some elderly persons live relatively free from chronic illness, but others can live for years with chronic illnesses that once proved fatal, captured yet another report. It added that medical devices improve mobility, resulting in increased demand and a wider range of needs. 

In a speech at an EPF-related forum in 2017, Datuk Abdul Rash- eed Ghaffour, then deputy governor of Bank Negara Malaysia (BNM), noted that a majority of Malaysians lacked long-term financial planning, and only 40% of them were financially ready for retirement. What caught people’s attention were the next set of figures, that three out of four Malaysians would be hard-pressed to save RM1,000 for emergency needs. 

Things have not changed much. The ground is as precarious as it was seven years ago. In fact, the havoc wrecked by the COVID-19 pandemic would have worsened the situation on the ground. 

One of the key solutions is to bump up our incomes. For a long time now, the nation has been stuck in what is called the middle-income trap. 

Abdul Rasheed is now the governor of the central bank. In its annual report for 2023, released two months ago, BNM discussed the importance of the nation transiting to a high-income nation. 

“We continued to advocate for a more comprehensive and efficient social protection system in Malaysia to ensure the well-being of the people in the long term. This included to streamline social assistance programmes to ensure those who need the support receive it. We also advocated for extending the coverage of the Malaysian private retirement savings scheme to all individuals, including workers in the informal sector (eg self-employed individuals). 

“We also continued to advocate for structural reforms aimed at boosting household incomes, especially amid the rising cost of living issues. This included generating opportunities for high-skilled jobs through quality investments in new growth areas and supporting initiatives to improve wage growth via upskilling and enhanced labour productivity,” according to the report. 

As we can see, defusing the ageing time bomb on our hands requires solutions on multiple fronts. 

Habhajan Singh is the corporate editor of The Malaysian Reserve. 

Pension payments for more than 900,000 retired civil servants are expected to cost the government over RM32 billion (S$9 billion) in 2024, accounting for more than 10 per cent of its forecast operating expenditure.

The bill is estimated to surge to about RM120 billion by 2040 if this plan is not implemented.

The new scheme is expected to be in place in 2024 and will require an amendment to the Federal Constitution, which Prime Minister Anwar Ibrahim can push through as he commands more than a two-thirds majority in Parliament.

The proposal to cut pensions for civil servants has been studied since the 1990s, but no sitting government had the political will to implement it, said Datuk Seri Anwar.

“There is a need for a new service scheme to avoid the risk of the country going bankrupt and future generations facing problems,” he said on Jan 28.

But analysts say the move comes with political risk for Mr Anwar’s unity government.

“It can lead to political suicide as the government may lose support in terms of votes, even though Mr Anwar is being honest in showing the reality of how the country might go bankrupt if the pension scheme continues for new employees,” said University of Malaya sociopolitical analyst Awang Azman Pawi.

The Pakatan Harapan alliance led by the Premier managed to garner only an 11 per cent vote share from the majority Malay community at the 2022 general election.

Meanwhile, a survey by independent pollster Merdeka Center in November 2023 showed that 81.1 per cent of Malays were dissatisfied with how Mr Anwar’s administration deals with economic issues.

“Slashing the pension scheme will likely be used by the opposition parties to rile up Malay voters who feel that they are deliberately being targeted because of their race,” Mr Halmie Azrie Abdul Halim, a senior analyst at political risk consultancy Vriens and Partners, told The Straits Times.

He said that the government has to walk the tightrope of securing and maintaining Malay support while making fiscal reforms.

“Although it is a brave move, these reforms may come at a cost, with civil servants expressing discomfort at working with the unity government. They may also seek to disagree with the politicians over the implementation of ongoing policies,” he said.

Currently, civil servants can either opt for the government pension scheme or contribute to the Employees Provident Fund (EPF), Malaysia’s retirement fund that is largely subscribed to by private sector workers.

Civil servants do not need to contribute monthly to the government pension scheme, and are entitled to a lifelong monthly payment upon retirement, calculated based on their last drawn salary and the number of years served.

When the retiree dies, the surviving spouse or children under the age of 21 will be eligible to receive the monthly pension.

In contrast, the EPF requires monthly contributions from workers and their employers, and the retirement funds saved in the EPF accounts can be withdrawn from the age of 55.

Savers can nominate beneficiaries for amounts left in their EPF accounts on their death.

Under the new plan, civil servants employed from Feb 1 will not come under the government pension fund and will instead contribute monthly to retirement schemes like the EPF.

Under the EPF, employers contribute a minimum of 12 per cent of the worker’s monthly pay, while employees contribute 11 per cent of their monthly salary.

The plan has drawn mixed reactions from government employees, even though those employed before Feb 1 are not affected by it.

Some acknowledge the government’s financial burden, while others say the proposal takes away one of the few privileges of public service.

“It is good for the government’s balance sheet, but honestly I do feel bad for the new recruits in public service. I chose the pension scheme over EPF so that in the event that I die, at least my wife will receive the pension to take care of our kids,” said a 50-year-old civil servant who gave his name only as Mr Ramlan.

Another civil servant, who gave his name only as Mr Ibrahim, told ST that the civil service will now be less attractive, as people join the public sector for such perks.

“Pension payments are one of the benefits we get on retirement, and it is seen as a privilege in this line of service,” said the 45-year-old.

Both did not give their full names because government servants are not authorised to speak to the media.

With new recruits no longer benefiting from a lifelong pension, the government should instead increase their salaries so that they can save for retirement, civil servants told ST.

The Congress of Unions of Employees in the Public and Civil Services in May 2023 urged the government to increase civil servants’ minimum salary from RM1,200 to RM1,800 monthly.

The last time the minimum monthly salary was increased, to RM1,200, was in 2016, it said.

A comprehensive study on the public service remuneration system, which covers new salary guidelines, is in its final stages before being presented to the Cabinet, said chief secretary to the government Mohd Zuki Ali on Feb 13.

Mr Anwar’s administration is implementing economic reforms to tackle the country’s high national debt, which stood at RM1.147 trillion as at end-August 2023.

This includes shifting to targeted subsidies for fuel and electricity and imposing tax hikes.

Funds saved from pension payments could be channelled towards vulnerable communities or other priority sectors for economic improvements, advisory firm BowerGroupAsia director Arinah Najwa said.

Ahmad Zulqarnain Onn said this percentage represented 2.4 million members aged between 18 and 55 in the formal sector.

Basic savings is a pre-determined amount set according to age in Account 1 under EPF to enable members to achieve a minimum savings of RM240,000 by the age of 55.

Ahmad Zulqarnain said the data showed that the number of people aged between 41 and 50 who had achieved their basic savings was higher than those aged between 51 and 55, who are closer to retirement age.

“All this data is telling me that a large portion of the population has inadequate savings for retirement,” he said during the 2024 EPF Financial Review Briefing here yesterday.

He also said that 75% of members who had retired and taken out their savings in a lump sum ran out of money within five years.

“The best thing to do is to withdraw only a portion of your savings instead of taking it all out at once.

“Members can even send instructions to EPF to withdraw their money monthly as opposed to a lump sum,” he said.

This money, he said, should be treated as income replacement during retirement, especially as Malaysia transitions to an ageing nation.

This transition should also be the focus of attention for policy-making as it would have long-term effects on the population, said Ahmad Zulqarnain.

“As we go forward and healthcare gets better, we anticipate Malaysians’ life expectancy will continue to improve to the age of 82 in 2060.

“Malaysians will live longer and will need to take care of themselves throughout those years,” he said, adding that only 42% of the total 24.2 million adults of working age in Malaysia were covered for old age protection.

This made Malaysia’s rate of coverage below the global average of 50%, he said.

“At EPF, we want this to increase to above the global average or strive to be as close to the Organisation for Economic Cooperation and Development’s average rate of 87%.

“This is very important as it provides social security for Malaysians,” he added.

Ahmad Zulqarnain also highlighted the transformation of the working landscape, with more people shifting beyond formal employment, as one of the challenges, referring to a rise in gig workers and self-employment due to the Covid-19 pandemic.

“The nature of work is changing due to technology, the low cost of communications, and lessons that we have learned from the pandemic.

“We anticipate that there will be an increase in different types of jobs going beyond formal employment, including gig jobs, remote working, and independent contractors.

“While this group of people would generate relatively higher income, they would not have old-age protection as they are not covered by any social security,” he said.

He cited research showing that by 2040, 33% of employment in Malaysia was projected to be in the informal category.

This would lead to lower likelihood of old-age income security and financial resilience upon retirement while at the same time, lowering the active formal membership base at EPF.

As at December last year, there were 16.07 million EPF members.

Of this, 8.52 million were active members, representing 50% of Malaysia’s 17.03-million-strong labour force.

Ahmad Zulqarnain said among EPF’s strategic response was to extend coverage for those within and outside the labour force to address the changing work landscape.

This would include coverage for contract and gig workers, self-employed individuals and business owners.

Other measures are introducing contributions beyond the statutory rate through voluntary excess and voluntary contribution programmes, such as i-Sayang and i-Saraan.