KUALA LUMPUR, Jan 10 — As the employment landscape in Malaysia continues to shift with the growing gig economy sector, the importance of Employee Provident Fund (EPF) contributions for self-employed and gig workers is becoming increasingly critical.

According to a recent report by HR Asia, the nation has approximately three million self-employed individuals as of 2023.

Citing Maybank Investment Bank Research, the report said the self-employed demographic represents over 17 per cent of Malaysia’s workforce, marking a sharp 25 per cent increase from the 2.4 million recorded in 2021.

Unlike the full-time workforce, many self-employed and gig workers in Malaysia do not participate in the voluntary EPF contribution scheme, which is not mandatory for them.

This creates a significant gap in financial security planning.

The evolving nature of employment, with more individuals prioritising flexibility over traditional roles, further highlights this issue.

Speaking to Malay Mail, University of Malaya Social Wellbeing Research Centre director Prof Datuk Norma Mansor emphasised the necessity of broadening EPF contributions beyond those employed by corporations.

"I propose the government make EPF contributions mandatory for everyone from age 18, based on their financial affordability,” she said.

It’s a safety net for all

With a rising ageing population, the need for a robust social security system has never been clearer.

According to Norma, having a social security scheme is crucial for any nation, particularly one with an ageing population.

"EPF contributions should be perceived as foundational capital and a long-term investment for future financial stability.

"With the average age of Malaysians at 30, there is no better time to establish a robust safety net through consistent contributions to EPF,” she said.

Norma said countries like South Korea and Japan have set examples by mandating retirement fund contributions for all citizens.

"This would be beneficial to everyone, so when they are old and retired, the fund can continue to support them with an income,” she added.

Bolstering financial health

In terms of financial stability, EPF contributions provide a risk-free avenue for investment with consistent monthly dividends.

Norma said while private funds may attract individuals with promises of higher returns, the certainty and reliability of EPF far outweigh potential risks.

Citing the Covid-19 pandemic, Norma said it was evident that many Malaysians did not have enough funds to cope with the financial uncertainty brought by the health crisis and job losses.

By ensuring that everyone contributes to a secure investment vehicle, even the self-employed could help cultivate a more resilient population better equipped to weather economic storms during a crisis.

Nurturing a financially literate nation

According to Norma, a mandatory pension scheme for all could foster better financial habits among Malaysia’s youth, encouraging them to prioritise savings from a young age.

Despite common beliefs, Norma said some gig workers’ income is substantially high but most of the young ones often lean towards immediate spending rather than future savings.

Hence, by instilling a culture of saving through mandatory contributions, Malaysia may pave the way for a financially literate generation poised for long-term success.

Norma said initiatives from her centre and various government institutions are already in motion to advocate for compulsory EPF contributions across the board.

The effort is in a bid to encourage individual financial security while acting as a safety buffer for the nation during economic downturns.

Earlier this month, EPF in collaboration with Norma’s centre launched the Belanjawanku Guide, a comprehensive tool and a new Retirement Income Adequacy (RIA) Framework to help Malaysians plan more effectively for retirement and better manage their monthly living costs.

The guide outlines the minimum monthly expenses required for various household types, helping Malaysians better understand and manage their financial needs.

Meanwhile, the RIA Framework focuses on retirement planning, offering personalised savings targets based on your lifestyle for a secure future in retirement.

For example, according to the Belanjawanku guide, a single senior person living in Klang Valley needs around RM2,690 per month to cover basic living expenses in retirement.

Based on this figure, the new retirement savings targets under the RIA Framework are divided into three tiers; namely basic savings (RM390,000), adequate savings (RM650,000) and enhanced savings (RM1.3 million).