If there’s one thing we ought all to have learned by now, it’s that few governments around the world gave a thought for the long-term when it came to Covid. In the United Kingdom, the reckoning has arrived in the shape of a massive tax bill which seems to have no end in sight. In Malaysia, the economy is in dire straits after the government advised its citizens to cash in their pensions to survive having to stay at home during the pandemic. It’s left the nation with a looming catastrophe. The Telegraph has the story:
With no furlough scheme and limited help from the government, [Malaysians] were forced to dig into their savings to survive. Many raided their pension pots after the rules were made more flexible to allow people of any age to withdraw money to survive lockdowns.
They took out billions of pounds, using their pension as a cash machine. Now, Malaysians teeter on the brink of disaster. Many have exhausted their retirement savings and now face living out old age in poverty.
It seems the Resolution Foundation think tank believes this was such a spiffing idea, it should be introduced in the U.K. Here’s the Telegraph’s summary of how the Malaysian system works:
Workers put in 11% of their salary and employers more than match it, making defined contributions of at least 12%. It is also considerably more flexible than those of many higher income countries.
The ‘two pot’ system has a second account, worth just under a third of the total, which can be used to buy a house or pay for education and medical expenses. The rest is locked away until it can be drawn down at age 55.
During the pandemic, millions of Malaysians were permitted to make four rounds of cash withdrawals from their pensions, totalling RM145 billion (£24 billion).
But urging Malaysians to cash in their pensions hasn’t turned out well:
With each round of pension raids the public demanded more, amid limited direct government support.
Now, millions face being unable to afford to retire.
Geoffrey Williams, an economist at the Malaysian Institute for Economic Research warns:
In the UK, it would likely lead to millions having inadequate savings and becoming reliant on the state pension and benefits with obvious implications for government spending, borrowing and higher taxes.
The Malaysians don’t even have the cushion of the state pension. And in the U.K. there’s talk that the pensionable age will have to rise to 71, and even then that it’s so costly the nation faces destitution if it carries on paying state pensions at the current level. Square that with the Resolution Foundation’s recommendations – if you can. The answer is simple. You can borrow from yourself. The Telegraph again:
The think tank’s report calls for savers to be able to have a “borrowable” fund in their pensions, of £15,000 or 20% of their pot, whichever is lower, to be paid back across with interest over a period of several years. It would essentially give every worker a ‘rainy day’ fund to fall back on.
You’re on your own then. Good luck.
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