˛Ń´ˇł˘´ˇłŰł§±ő´ˇâ€™S&˛Ô˛ú˛ő±č;retirement policy has returned to the spotlight after the World Bank proposed raising the Employees Provident Fund (EPF) withdrawal age to beyond 55, citing the country’s rapidly ageing population and longer life expectancy.
In its latest report, “Should Malaysia expand its social pension? Global evidence, design issues and options”, the international financial institution said the current withdrawal age of 55 and social pension eligibility at 60 are no longer in step with Malaysia’s demographic realities.
It argued that gradually increasing both thresholds would help sustain the country’s social protection system while allowing retirees to receive larger average benefits later in life.
The World Bank said the proposed shift would better reflect Malaysia’s demographic profile, with citizens now living longer and healthier than four decades ago, when the current EPF framework was first designed.
Citing data from the Department of Statistics Malaysia’s (DOSM) 2022 Household Income and Expenditure Survey (HIES), the Bank found that poverty risk rises sharply with age — 24% among households headed by those aged 60 and above, 42% for those 65 and above, and 49% for those 70 and above.
It added that raising the withdrawal and pension eligibility ages would be justified if paired with broader coverage for Malaysians without retirement savings or fixed pensions, to balance welfare needs with fiscal responsibility.
Deepening Hardship
Federation of Malaysian Consumers Associations (Fomca) CEO Dr Saravanan Thambirajah said delaying the EPF withdrawal age may appear fiscally sound, but it would have a severe and immediate impact on many ordinary Malaysians.
He said most contributors rely on their EPF savings as their only safety net once they retire, at a time when food, healthcare and utility costs continue to climb faster than income growth.
Many use their withdrawals at 55 to clear housing loans, pay medical bills or fund their children’s education, and losing that access could destabilise household finances.
“The policy intention may be to preserve savings for later years, but in practice it would deprive retirees of financial flexibility when they need it most,” he told The Malaysian Reserve (TMR).
Saravanan warned that without parallel measures such as affordable healthcare, housing support and cost-of-living relief, the proposal could worsen hardship among lower- and middle-income households and provoke public frustration.
Policy reform must recognise that Malaysia’s social protection framework remains uneven and that many older workers have limited savings or access to alter- native income.
He also pointed out that weak financial literacy remains a major barrier to sustainable retirement planning.
Studies and EPF data show that a large share of members deplete their balances within a few years of withdrawal because savings are too small and financial planning habits are poor.
“Expecting Malaysians to adjust to a later withdrawal age without first improving financial literacy and savings culture is unrealistic and potentially harmful,” he added.
Saravanan urged the government to focus on strengthening EPF’s investment performance, dividend growth and transparency before revising withdrawal rules.
A stronger return on savings would help build public trust and improve long-term adequacy more effectively than restricting access.
He added that a flexible model allowing early withdrawals for hardship or health reasons would be fairer, particularly for those already nearing retirement.
Saravanan said there is no one-size-fits-all approach to reform, and the government must recognise that the issue is not merely about the withdrawal age but about savings adequacy and EPF’s overall performance.
He added that any change should be guided by the principle of ensuring no one is left behind.
“Retirement policy must protect people’s dignity, not punish them for systemic affordability issues.
“Malaysians deserve both long-term security and the freedom to manage their own savings responsibly,” he said.
Gradual Alignment
While consumer groups warn of the immediate financial strain on retirees, employers said a more measured alignment between policy and workforce realities is needed.
Malaysian Employers Federation (MEF) president Datuk Dr Syed Hussain Syed Husman said aligning the full EPF withdrawal age with the current minimum retirement age of 60 would be a more balanced and practical approach than the World Bank’s proposal to extend it to 65 or 70.
He told TMR that the five-year gap between the current withdrawal age of 55 and the statutory retirement age of 60 has created a structural inconsistency, leading many employees to withdraw their savings early even though they remain in the workforce.
This, Syed Hussain said, often leaves them financially vulnerable once they fully retire.
“Aligning both ages would encourage better long-term financial planning and promote income security for Malaysians in their later years,” he said.
However, Syed Hussain cautioned that any adjustment must be implemented gradually and supported by policies that address employability, health and productivity among older workers.
He said while the intention to retain older workers is understandable given Malaysia’s ageing population, not all sectors can sustain such a shift without disruption.
Many employees in physically demanding industries such as manufacturing, plantation, construction and services may struggle to work effectively up to or beyond 60 due to health deterioration and fatigue.
Employers, he said, could face higher healthcare costs, reduced efficiency and increased workplace risks if reforms are introduced without adequate safeguards.
“Simply deferring EPF withdrawal without addressing employability, health and productivity challenges may not achieve the desired outcome,” he added.
To mitigate these risks, MEF proposed that the alignment to 60 be implemented as part of a broader, integrated strategy.
This includes flexible work arrangements, job redesign, continuous skills upgrading and targeted tax or policy incentives for employers who continue to hire or rehire older workers.
Syed Hussain said extending the working lifespan must go hand in hand with health and wellness programmes to ensure productivity in later years.
Employers who invest in preventive health screenings, ergonomic improvements and wellness initiatives, he added, should be recognised under social responsibility or tax frameworks.
MEF also recommended that any policy change be introduced through a phased, cohort-based rollout rather than a blanket shift. Younger workers could begin under the new rules, while those nearing retirement retain their existing withdrawal rights to ensure fairness and predictability.
“A sudden blanket increase will create confusion, affect employees’ expectations and place additional administrative burdens on employers,” Syed Hussain said.
Alternatively, MEF supports a voluntary opt-in mechanism, allowing employees to defer their withdrawals to earn higher dividends while preserving flexibility for those facing health or financial challenges.
Syed Hussain said restricting access to EPF savings too abruptly could strain household cash-flow, especially among lower- and middle-income employees who rely on partial withdrawals to meet immediate needs.
This, he added, could lead to financial stress, reduced morale and weaker workplace performance.
“Aligning the EPF withdrawal age with the retirement age of 60 is a prudent and necessary first step but it must not be done in isolation or in a way that burdens employers.
“Sustainable implementation requires balancing retirement security goals with labour market realities and the competitiveness of businesses,” he said.
Protecting Savings Without Choking Consumer Spending
As the debate over Malaysia’s retirement age deepens, economists caution that policy adjustments to the EPF must also account for their broader economic ripple effects.
Monash University Malaysia’s School of Business senior lecturer Dr Andrew Woon said raising the EPF withdrawal age could dampen short-term domestic consumption and household spending.
Many households are already struggling with the rising cost of living and rely on early EPF withdrawals to meet their daily needs.
“Restricting access to these funds could therefore exacerbate financial hardship for lower-and middle-income families,” he told TMR.
Woon said there are both advantages and disadvantages to raising the withdrawal age. While the policy may help address financial insecurity among older Malaysians, it does not tackle the root causes of inadequate retirement savings.
Enhancing financial literacy, increasing income levels and encouraging consistent saving habits are more sustainable solutions.
Moreover, allowing some flexibility for early withdrawals can be beneficial.
“Individuals may wish to use their hard-earned savings for meaningful purposes such as investing, starting small businesses or fulfilling personal aspirations while they are still healthy and active,” he said.
Therefore, a balanced and flexible approach is needed as a one-size-fits-all policy may not suit the diverse financial realities of Malaysians.
On the other hand, Universiti Malaysia Kelantan’s (UMK) Faculty of Entrepreneurship and Business deputy vice-chancellor (Academic and International) Prof Datuk Dr Nik Maheran Nik Muhammad told TMR that raising the EPF withdrawal age could help increase retirement savings as Malaysians live longer.
However, she cautioned that implementing it too quickly could weaken domestic spending and strain households that still rely on their EPF at 55.
“Any change must be made step by step. Before asking people to wait longer for their EPF, the government should first make sure older workers can still find good jobs, those with low income are protected and people have other financial support if they get sick or lose their job,” she said.
Nik Maheran suggested several approaches to strengthen retirement readiness without disrupting financial stability.
Among them are offering members the option to receive monthly annuity-style payments instead of a single lump-sum withdrawal, aligning the withdrawal age with the real retirement age of 60-65 and allowing members to keep their funds invested to continue earning returns even after retirement.
“The idea is not to stop people from taking their money, but to make sure they have enough for the long run while still supporting the economy today,” she said.
As Malaysia weighs the World Bank’s proposal, the debate reveals a difficult balance between long-term fiscal discipline and the immediate needs of working Malaysians.
While raising the withdrawal age could strengthen retirement adequacy, its real challenge lies in whether the country can ensure jobs, healthcare access and financial literacy for an ageing population that still struggles to make ends meet.
What is clear for Malaysia, while finding a path that safeguards the future savings without straining today’s financials, the pursuit for sustainability cannot be undertaken at the cost of affordability.
