Epf Pension Reform Restoring Dignity And Security In Retirement

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FOR decades, the Employees Provident Fund (EPF) has been the backbone of Malaysia’s retirement system. However, the realities of modern life have exposed the limits of a system designed for a different generation.
People are living longer, medical costs continue to rise, and many find it difficult to save enough to sustain two decades or more after retirement. The government’s plan to explore a monthly pension scheme under the EPF, announced under the 13th Malaysia Plan (RMK13), represents a long-awaited reform.
It aims to ensure that retirement savings last throughout a retiree’s lifetime, reducing the risk of financial hardship in old age.
According to the Finance Ministry, EPF recommends a basic savings amount of RM240,000 by the age of 55. With that amount, a retiree could withdraw RM1,697 a month for 20 years, from age 55 to 75, assuming a competitive annual dividend rate.
Nevertheless, most contributors do not reach this benchmark. Many retire with less than RM50,000, and some deplete their savings within a few years, forcing them to continue working or depend on their children.
The EPF was established to provide lifelong protection, but when savings run out too quickly, the system fails to fulfil that promise.
A dual structure for stability and flexibility
(Image: The Vocket)To address this, the government is proposing to divide EPF savings into two components. The first will remain as flexible savings, available for withdrawal at age 55.
The second will form a dedicated pension fund that provides monthly payments until the balance is exhausted. This dual structure offers flexibility and stability in equal measures.
It also recognises a critical truth about human behavior: many people struggle to manage large lump-sum withdrawals over time.
The government has assured that existing contributors will not lose their current rights. Deputy Finance Minister Lim Hui Ying clarified that the new scheme would apply automatically to new members after implementation, while existing members may opt in voluntarily.
This flexible approach promotes fairness and encourages gradual transition. A simple illustration shows how the system might work. A contributor with RM53,000 at age 55 could receive RM250 monthly for one year, equivalent to RM3,000 annually, based on EPF’s 6% dividend.
The principal of RM50,000 remains intact. If the contributor prefers RM500 a month, the savings could last about 12 years. For larger savings, such as RM500,000, monthly payments of RM2,500 could be sustained while preserving the capital.
These examples demonstrate that the proposed pension model can be both flexible and sustainable, tailored to each contributor’s circumstances.
EPF can further strengthen the plan by introducing incentives. Free personal accident takaful or death benefit coverage for contributors who choose the pension option would add meaningful value.
Such features would reinforce EPF’s image as a compassionate, member-focused institution. Some may argue that retirees can manage their own funds through instruments such as Amanah Saham Bumiputera or Tabung Haji.
However, those options require investment knowledge and discipline. EPF offers something unique: professional fund management, transparent governance, and a consistent record of delivering competitive dividends.
For the pension reform to succeed, amendments to the Employees Provident Fund Act 1991 (Act 452) will be required. The current law only allows lump-sum withdrawals at ages 50 and 55, without provisions for structured post-55 payments. Legal updates will empower EPF to manage modern pension schemes aligned with current demographic realities.
Equally important is a shift in how Malaysians view ageing. According to the Department of Statistics Malaysia, life expectancy at birth now stands at 73.1 years for males and 77.9 years for females. This means most Malaysians will spend 15 to 25 years in retirement.
A system designed three decades ago can no longer serve this extended life span. A monthly pension structure provides both discipline and predictability. It encourages better planning, stronger financial literacy, and intergenerational stability.
A national responsibility
(Image: HR Asia)By 2040, one in five Malaysians will be aged 60 or older. Without reform, the nation risks a generation of retirees without adequate income, creating heavier social and economic burdens.
The proposed monthly pension option under RMK13 is therefore not merely an economic initiative. It is a national responsibility and a moral commitment to protect workers who have dedicated their lives to building the country.
For EPF, this reform is an opportunity to evolve from a savings custodian into a true retirement income manager. Its mission should be to help contributors remain financially independent for as long as they live.
Retirement should not be marked by anxiety or uncertainty but by peace, fulfilment, and gratitude. The EPF pension reform is a step toward that vision. It represents foresight, compassion, and collective responsibility. And it deserves the nation’s full support. 
Dr Mohamed Hadi Abd Hamid is a Certified Shariah Advisor (CSA) and Islamic Financial Planner (IFP). Dr Mohd Zaidi Md Zabri is Interim Director of Centre of Excellence for Research and Innovation in Islamic Economics (i-RISE), ISRA Institute, INCEIF University.
The views expressed are solely of the author and do not necessarily reflect those of  MMKtT.
- Focus Malaysia.

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