Raising Malaysia’s EPF employer rate to 20% will hurt competitiveness, business leaders say

[KUALA LUMPUR] Business leaders in Malaysia – already bogged down by rising costs – are resistant to the growing calls by workers for employers to contribute more to their pension fund.

Earlier this month, the Union Network International-Malaysia Labour Centre called on the government to develop new labour policies to address several pressing issues faced by workers, which included raising the employers’ contribution to the Employees Provident Fund (EPF).

Currently, the mandatory EPF contribution rate for employers is 13 per cent for those earning below RM5,000 (S$1,492) a month, and 12 per cent for those earning above that amount. The union wants to see this rate go up to 20 per cent for those who earn less than RM4,000 a month.

In response, Malaysian Prime Minister Anwar Ibrahim said the Cabinet has already received this request from the union, and that it will be discussed, although he did not elaborate further or give a timeframe to do so.

If the proposal eventually gets the green light, Malaysia will rank the highest among South-east Asian countries, in terms of employers’ mandatory contribution to their respective workers’ pension fund or social security.

The country with the current highest rate is Singapore (up to 17 per cent, depending on each worker’s age), followed by Vietnam (14 per cent); the Philippines (9.5 per cent); Thailand (5 per cent); and Indonesia (3.7 per cent).

The heads of various business associations in Malaysia voiced concerns over the union’s proposal to raise employers’ EPF contribution rate, citing worries that it would reduce the country’s cost-competitiveness in attracting foreign investments.

Low Kian Chuan, president of the Associated Chinese Chambers of Commerce and Industry of Malaysia, described the proposed hike as “unreasonable and inappropriate”, adding that it is being talked about at a time of rising business costs and a weak economic outlook.

“We cannot generalise that all businesses have fully recovered from the pandemic,” he told The Business Times. “Some sectors, such as tourism and construction, are still at the early stage of recovery, while manufacturing and exports have experienced a slowdown in recent months due to softening global demand.”

According to estimates by the chamber, companies in Malaysia will have to fork out close to RM2.1 billion more each month if the EPF employers’ contribution rate goes up to 20 per cent.

As things stand, business owners say they are already grappling with higher operating costs after the government imposed new measures last year. These include a 25 per cent jump in the monthly minimum wage to RM1,500, an increase in electricity surcharges for certain users, and higher overtime payments.

Callum Chen, the president of the Malaysian Consortium of Mid-Tier Companies, who also runs a manufacturing plant in Selangor, said the average monthly electricity bill for his facility has gone up by 40 per cent to RM560,000.

“Any drastic increase in operating costs will cause price hikes (for consumers) and a decreased headcount. In the worst-case scenario, the business will fold. Foreign investors who might otherwise have come to Malaysia could move to other countries with lower costs instead,” he added.

The union says it wants to do what it can to beef up the retirement funds of workers.

The latest data from Malaysia’s central bank and EPF shows that 70.5 per cent of the 7.2 million active formal-sector EPF members aged between 18 and 55 do not meet the fund’s “Basic Savings” threshold of RM240,000 by age 55.

In April, EPF noted that the median savings for Malaysians aged between 51 and 55 would usually last five years upon withdrawal at 55. This figure, however, has fallen to around three years, after a series of pandemic-related withdrawals resulted in about RM145 billion being taken out from members’ accounts.

About 3.1 million people who made these special withdrawals and are younger than 55 as at January have yet to rebuild their savings, which remain low at a median of RM890.

These revelations led to much debate on social media, with numerous workers’ unions calling for the government to step in to help rebuild the retirement savings of citizens.

Low Kueck Shin, president of the Johor Bahru Chinese Chamber of Commerce and Industry, said workers themselves should also take greater ownership of their retirement planning.

Companies, too, should do more to train and upskill their employees in order for them to earn better salaries. Low added that doing so is more sustainable than raising the mandatory EPF contribution rate.

“Employers are more willing to pay more for capable workers, and if they don’t, the talent could always look for opportunities in other places,” he said.