EPF: A System of Oppression?
Artikel ini juga tersedia dalam Bahasa Melayu
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I felt compelled to write this article after the recent viral issue regarding EPF. Is EPF withdrawal justified or not? Now I want to tell you — the EPF system itself should be abolished and should never have been created in the first place.
In this article, I will also discuss the pension scheme and EPF scheme, how the EPF scheme came into existence, and finally whether your EPF money should be withdrawn. I will also explore whether EPF is a conspiracy against the middle class and how EPF funds can be manipulated.
In the world, there are usually two types of retirement schemes. The pension scheme is what the West calls a defined benefit plan. The EPF scheme is a defined contribution plan. In most countries, you can find both systems, though certain aspects may differ slightly between them.
Based on my experience, after nearly completing my housemanship in the Malaysian Ministry of Health, I had to decide whether to choose the pension scheme or EPF. To compare the two, I suggest you do your research — there are already many people sharing analyses on Facebook.
One of the most interesting analyses I found was shared by Alwi Adam on his Facebook page titled EPF or Pension?. If it feels too long, just read my conclusion below.
My conclusion is that if you plan to work until retirement, then choose the pension scheme. The reason is that after you retire, you will receive a monthly pension payment until you pass away. The longer you live after retirement, the more you benefit. While working, those who chose the EPF scheme don''t receive their full salary — a portion is forced into EPF savings. So there is a cashflow advantage for those who choose the pension scheme.
For EPF, the benefit is that you can retire early without being tied to a contract to work until pension age. Your employer will also provide ''additional contributions'' into your EPF. In this case, you are forced to save money in EPF, and your employer is also forced to contribute towards your retirement.
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In the old days, during feudal times when nobles owned lands and territories, they also had servants or inhabitants who would work the land and provide tribute to the nobles.
After many people moved away from the system of servitude and colonisation, and people could determine their own life choices, governments and large organisations emerged that needed ordinary people to work for them. These ordinary people were not keen on working for others or making others rich. So a very enticing system was born: "You work for me for a certain number of years, and after retirement age, I will support you until you die."
Who would not be tempted? The idea of someone supporting you until death — and in some cases or contracts, even supporting your dependants if you die early — is extremely attractive. And so the pension scheme was born.
However, the pension system actually has problems.
We cannot predict the future. Where does the money to pay those eligible for pension actually come from? Is it from the profits generated while the person was working, which we then successfully rolled over and grew? So that a portion of it could later sustain the livelihood of our former employee until death?
In the old days, it was perhaps easier to calculate — average lifespan was not like today. Perhaps they had already calculated that they would not lose money offering the pension system: giving monthly salaries that were just enough to live on, while the organisation or government reaped huge profits by achieving high levels of efficiency at increasingly lower costs through large-scale activities. And when they retired, that is when the workers would be paid — the portion they could have already received while still working.
Besides the factor of increasing human lifespan, another problem emerged for pension schemes. They failed to anticipate that due to modernisation, populations began to trend towards not marrying and not having children — populations are shrinking! Where will the money come from to pay retirees if there are no longer people working for the company or government? Productivity declines!
Currently in Malaysia, doctors have started going on strike. In the UK, it is not just doctors — workers in other sectors want to strike too. Why are our doctors striking? Because originally, those who completed their housemanship could be absorbed into permanent government positions. However, now they are merely contract workers. Only selected individuals will be absorbed. This is unavoidable — the government simply does not have enough money.
There is no money to build new hospitals to cater to the population. No hospitals means no placements for new doctors. As for existing doctors, their salary progression is time-based, meaning after a certain number of years, their salary grade will definitely increase. If all existing doctors are going to get raises, costs will naturally increase.
At the same time, we cannot simply analyse this by looking at just one unit or sector. The Ministry of Health in Malaysia does not make money by charging patients high fees — it is more of a welfare service. You visit a government clinic and pay RM1 or RM5, get a doctor''s consultation and free medication. You simply cannot compare the RM1-RM5 collected with the expenditure on medications and staff salaries.
So the government needs to look at other areas to generate income. That is a topic for another day. For now, when the pension system was projected to burden the government, the ''defined contribution'' or EPF scheme was created.
Under the pension system, the government or employer must support the worker until death. In a situation where we cannot predict the future, that is a massive risk. Hence, the proposal was to create an improved system over the pension.
Not referring specifically to Malaysia''s EPF — do not misunderstand — but globally. With employers contributing a small amount to the employee''s retirement fund under the name of ''matching contribution'', it is hoped that this can help the worker when they are old.
The employee''s future is no longer the employer''s responsibility. Under the EPF system, the employee''s contribution is deducted from their salary, while the employer''s contribution is provided as an addition or matching contribution based on a percentage of the salary.
Workers are forced to save in a fund, and the savings are pooled together and managed by a body responsible for investing the money into instruments expected to deliver high returns to contributors.
I recently watched a video about retirement schemes by Robert T. Kiyosaki. He said we are being deceived by retirement schemes. He claimed that the money we save for retirement actually benefits Wall Street more — for us in Malaysia, that would be like Bursa Malaysia. A strange statement, is it not?
And that reminded me of a question I still had not answered previously regarding window dressing.
Window dressing, if it occurs, supposedly beautifies the performance of fund managers or the stock market itself. To understand more, you can read Bursa Malaysia Closes Higher: Mid-Year Window Dressing?
My unanswered question at the time was: why would large institutional funds like EPF be so diligent in buying shares on Bursa Malaysia en masse just to beautify the performance of the Malaysian stock market?
Looking at it again and listening to what Robert T. Kiyosaki said, nothing is impossible. The laws and regulations regarding EPF are controlled by the government. And the government, if it wants to look good in the eyes of foreign investors, needs a healthy-looking stock market.
EPF, as one of the world''s largest funds, plays a significant role in ensuring that national assets — most of which are listed on Bursa Malaysia — do not lose value due to selling by the public, or in more impactful cases, by foreign funds.
At the same time, during economic downturns that typically cause foreign funds to flee, institutional funds like EPF will step in to stabilise the situation, and possibly based on the assessment that these companies are genuinely being traded at discounted prices or below their intrinsic value (undervalued).
By taking such action on companies that typically pay dividends, EPF collects substantial dividend yields relative to the share prices paid. This is also one of the reasons why EPF can deliver competitive returns of around 5-6% per annum.
I am not saying that EPF is not skilled at managing funds. However, with the massive amount of funds under management, if there are no strict SOPs or procedures governing investment decisions, then it is very easy for the fund to incur significant losses.
Regarding SOPs and procedures, I am confident that EPF has sufficient experience in that regard.
At the same time, if there is government or political interference, would EPF make ''exceptions'' in such cases?
What if there is a company linked to the government that is simultaneously incurring massive losses beyond salvation? And before that, it had already received many subsidies or government assistance, and perhaps EPF had already become one of the largest investors in that company. What would EPF decide?
Bail out the company with the people''s funds, or stop investing in the company immediately and withdraw with a ''realised loss'' because the investment value has already depreciated?
That is among the dilemmas faced by fund managers, and I think if you managed your own portfolio, you would face it too. Stock market investors especially should understand what I am trying to convey here.
There is no denying that the EPF system has several benefits. Among them is retirement savings. Assuming that the ''additional contribution'' from the employer would not exist as a bonus without the EPF system, then that additional contribution is indeed a highly valuable bonus.
EPF will certainly strive to deliver competitive returns to contributors — otherwise, they would face public backlash. EPF also appoints qualified and experienced investment professionals to manage their funds.
Based on these points, if you lack financial knowledge and discipline in managing money, then placing your money in EPF is a wise move. If you wish to contribute voluntarily because you are self-employed, you need to choose between EPF or ASB. You can read the article Comparison Between EPF and ASB to learn more.
The problem when a portion of your money is ''seemingly'' forced into a retirement fund is that you are left with less money for daily living. While the money in EPF is indeed yours, you face restrictions when trying to withdraw it.
When emergencies arise, that money may need to be withdrawn first. Let me give you examples:
a. You or a family member faces an illness requiring treatment, but the medical costs are expensive. With EPF funds, you could pay for the treatment, and the result is that you survive. That is if fate allows survival — but even if not, at least you tried. What happens if the illness goes untreated because EPF funds are inaccessible and the person dies? The money saved for retirement will never be used by the contributor at all.
b. A contributor faces the possibility of losing assets such as a house or car being repossessed. They need assistance at least to help with cashflow while they try to find a way or job to cover monthly payments in the future. What good is it if, due to not being able to access EPF funds, the house gets auctioned off and the car gets repossessed? They will have suffered losses far greater than the returns from EPF savings.
On the topic of debt and loans, I want to remind you once again. In this world, there are two things that are certain when it comes to money: Taxes and Interest (Riba).
If you do not pay your taxes, the government will seize your assets, impose restrictions, and can prosecute you in court. If you do not pay your loan instalments, you can be declared bankrupt — which also comes with its own restrictions.
What if that surplus money, instead of being placed in EPF for investment returns, is used to settle loans — perhaps paying off the principal — even if you cannot clear all your debts?
Investment returns are never guaranteed. However, if you pay off the principal, you are guaranteed to save on interest for the amount you paid. Especially if the loan interest rate is very high, such as credit card or personal loan interest. Not to mention late payment penalties and other charges.
That is what I can share regarding EPF. EPF should be abolished when our society becomes one where everyone is financially literate, knows how to manage their own money, and the country''s assets are stable due to strong economic fundamentals. Let us not forget that the entire world would also need to abolish this retirement system so there is no stark difference between countries whose governments back retirement funds and central banks and those that do not.
However, none of that is happening — everyone has their own agenda. As human beings living temporarily in this world, we must be resourceful in earning a living and seeking knowledge so that we are not oppressed.
Abolishing EPF entirely and abruptly — withdrawing all funds and distributing them to contributors without thoroughly studying the consequences — would also bring disaster upon us all.
Speaking of agendas, I have my own agenda too. I am a stock remisier — I make a living by finding clients who trade. So if you are interested in becoming my client, you can visit What Is a CDS Account and How to Open a CDS Account with Mplus Online.
In Singapore, they have the HDB housing system, which is closely linked to their retirement system. To learn about the HDB housing system, check out Singapore''s Unique HDB Housing System.
If you want to learn the ''copy & trade'' technique using the Bursa Marketplace platform, head over here.
EPF (Employees Provident Fund), known as KWSP in Malay, is a mandatory retirement savings fund in Malaysia. It was established to ensure workers have savings when they retire, though there are various views on its effectiveness.
Yes, there are several early withdrawal schemes such as withdrawals for housing, education, health, and the Flexible Account. Specific conditions must be met for each type of withdrawal.
Stock market investing has the potential for higher returns but also carries higher risk. EPF provides more stable returns of around 5-6% per annum. A combination of both is a wise strategy.
The first step is to open a CDS account through a licenced broker. After that, you can begin buying and selling shares on Bursa Malaysia.
Do not let your money depend on just one source. Diversify your investments for a more secure future.
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