Right time to raise wages

FIRST came the suggestion that Employees Provident Fund (EPF) members with savings above certain thresholds should get progressively lower dividends, depending on the amount they have in their retirement accounts, the tiered dividend argument.

Then, recently at the International Social Wellbeing Conference 2026 (ISWC 2026) organised by the EPF, another idea was floated, that employers should raise their contribution to employees to 15% or 16% for those earning below RM5,000, while those earning above RM10,000 should have their employer contribution cut to 4%. It’s like getting penalised for being productive.

The suggestion came from no less than a former EPF chief executive officer or CEO, Tan Sri Shahril Ridza Ridzuan, now the chairman of Axiata Group Bhd, who correctly pointed out that Malaysian wages are too low.

Because the EPF contributions are proportionate to employees’ salaries, low wages mean the savings will grow slowly despite being in formal employment over years and having regular contributions in their retirement accounts.

Employers currently contribute 13% to the EPF for employees earning below RM5,000 and 12% for those above RM5,000. All employees contribute a basic 11% deducted from their pay.

According to the latest government data, only 12.2% of Malaysian formal sector employees earn RM10,000 and above out of seven million, while those earning below RM5,000 make up close to 71% of formal sector employees.

For comparison, the average graduate pay stood at RM5,330 in 2024 while the median stood at RM4,521.

There is now a proposal to raise graduate and semi-skilled workers’ starting salary to RM2,500. The decision to raise the minimum wage to RM2,000 from next June helps, as approximately 26% of employees currently earn below what will be the new minimum wage. This is just over one in four employees who are either just starting out in the workforce or are in low value-added jobs.

Now, here’s the thing, why don’t employers raise the salaries of their employees instead since wages are low, as everyone has been pointing out for years now?

Why must the burden fall on employees, and that on those who have worked hard and been recognised for their productivity by getting promoted and having their pay raised?

If employees are to be penalised, then there is no incentive to be productive or show initiative. What is the good in that, for both employers and the employees?

The economy will suffer as low savings mean future consumption will suffer, and talent retention will be next to impossible.

Instead, raising wages will align employers to the government’s 40% target of employee compensation in terms of wages and benefits (which includes EPF contributions) as a share of gross domestic product (GDP) by 2030 under the 13th Malaysia Plan. As of 2025, the share stood at 33.9% of GDP, up from 33.6% of GDP in 2024.

According to government statistics, value-added per-hour productivity grew 3.7% in 2025 compared to a gain of 2.1% in 2024 while per-employment productivity was up 3.4% in 2025 compared to 2.4% in 2024. There was only a 0.3% gain in wages in that period versus the productivity gains.

The macroeconomic reports point to stable employment and wage growth as holding up private consumption but is it really? A research report from the ISWC 2026 showed that for those EPF members who made withdrawals from their Akaun Fleksibel, created in May 2024 to address short-term needs, some 70.3% across all age categories, below 30 to above 50, cited food and other daily necessities for these withdrawals.

We can infer that for those below 50 to withdraw from their retirement savings to make ends meet means that wages are clearly too low and at a time when many are facing higher cost-of-living challenges. While this was not addressed, the suggestion that employers give a higher contribution to low-pay employees infers that these employees are stuck at these pay bands for longer or even indefinitely.

Then, measures such as the Progressive Wage Policy, a structured wage incentive programme based on productivity and skills upgrade, should be the focus of employers and the government.

When it was implemented, it suffered from slow take-up, but according to an economist, it has picked up as the private sector has gained confidence in the government’s commitment to funding the programme, as a subsidy is paid out over a period to enrolled employees.

Perhaps the government can allocate more for the programme.

Ultimately, the suggestion for the employer EPF contribution to be lowered by up to two-thirds from the statutory 12% for those earning above RM10,000 is unwise, as it defeats the government’s aim to strengthen the social safety net, of which retirement savings is core to the financial pillar.

As of May 31, 2026, just over 38% of 7.94 million active formal sector employees aged 18 to 60 had reached the basic savings threshold of RM390,000.

The EPF’s other savings thresholds are adequate savings of RM650,000 by age 60 and enhanced savings of RM1.3mil by age 60. It was reported that just over a tenth of members will reach the enhanced savings threshold at age 60.