Budget 2022: Analysing The Measures Through A Personal Finance Lense

Following the tabling of Budget 2021, the first major bill of the current administration, there has been a lot of discussions and debate over the proposed initiatives and how it could help Malaysians, as well as the country’s economy recover from the pandemic.

These unprecedented times have not only thrown the economy into chaos, but also effectively placed commerce at a standstill, leaving devastating effects on the welfare of Malaysians and Malaysian businesses, including the small medium enterprises (SMEs) and micro SMEs which make up a significant 98.5 percent of Malaysian businesses.

We recently did a spotlight on the main key highlights, and concluded that Budget 2021 - the largest budget Malaysia has seen - takes an inclusive and rakyat-centric approach, covering all levels of society: the Bottom 40, Middle 40 and Top 20, SMEs and multinational companies.

Related: T20, M40 And B40 Income Classifications in Malaysia

This approach has also been applauded by the Malaysian Financial Planning Council (MFPC), particularly for its focus on two key areas: financial protection and personal finance for individuals.

In this article, we analyse how Budget 2021 could help you better protect and enhance your financial well-being as well as help you manage your personal finance through some of the measures announced.

Protecting the most vulnerable among us through stronger individual financial protection

According to MFPC, financial aid measures to support insurance coverage for the B40 group is pertinent to protect lower-earning individuals.

As outlined in Budget 2021, the government has announced plans to extend the social coverage to the B40 group through the Program Baucar Perlindungan Tenang.

Through this programme, each recipient of B40 aid will be given a RM50 voucher as financial assistance to purchase the Tenang Protection product which includes Takaful Life and accident.

At the same time, the government will extend the exemption period on stamp duties for all Tenang Protection products with an annual contribution of not more than RM100 for a period of another five years up to 2025.

“As such, attention is given to insurance as a key instrument of financial protection. The virus does not discriminate and having planned for sufficient protection will help individuals tide over in moments of need such as in the current pandemic,” said Vincent Kwo Shih Kang, president of the Malaysian Financial Planning Council (MFPC). “We are optimistic that the move to allow withdrawals from Account 2 for the purchase of Insurance and Takaful products will help an individual to have better insurance coverage.”

The fact of the matter is many Malaysians are underinsured. The mortality protection gap in Asia, according to Swiss Re Institute’s Closing Asia’s Mortality Protection Gap report, currently stands at US$ 83 trillion in 2019 and is expected to rise by an average of 4% per annum till 2030. The gap is almost eight times their average annual household income whilst the total mortality protection gap in Malaysia stands at US$ 0.7 trillion.

The report shows there’s a wide gap between the amount of life insurance people carry versus the amount they need based on age and current income levels - an alarming sign to say the least.

Kwo said MFPC commends the government’s leadership in expanding the provision of the voucher system, “Perlindungan Tenang” as a more targeted move to ensure the B40 community could be insured under the scheme. The expansion of mySalam to allow claims for medical devices will also benefit lower-income earners of society who are covered under the scheme.

If you didn’t already know, mySalam is a free takaful health protection scheme which provides takaful protection for individuals in the B40 income group via the mySalam Trust Fund. It will improve the financial security of approximately 3.8 million Malaysians belonging to the low-income group by providing beneficiaries with a one-off RM8,000 payment.

Besides that, the government also proposed to allocate RM6.5 billion of cash handouts, expected to benefit 8.1 million individuals, via the Bantuan Prihatin Rakyat (BPR) programme. For more information, check out our recent coverage on this.

Refer to the table below to check the requirements and benefits:

In terms of personal finance, MFPC emphasises the following initiatives:

Amendment of the Consumer Credit Act lauded

The government’s proposal to amend the Consumer Credit Act, Kwo said, will help individuals from the lower income group and those who are not financially literate when it comes to the significantly higher interest rates imposed by such institutions.

“By streamlining this act which currently does not fall under the purview of Bank Negara Malaysia (BNM) and Securities Commission (SC) Malaysia, will help susceptible Malaysians who have credit facilities from Non-Banking Financial Institutions (NBFIs),” Kwo said.

“Our experience with dealing with members of the public and civil servants have often, through a proper analysis of their finances, indicated that their debts with NBFIs are a cause of concern as such debt records are not portrayed on the Central Credit Referencing Information System (CCRIS) by the Central Bank,” he said.

“Our financial literacy programmes for the community further indicates that many individuals struggle with money management because they lack the know-how of management of finance especially after making multiple financial mistakes in the past,” he added.

Withdrawal or advances of savings from EPF Account 1

Employees Provident Fund (EPF) has now expanded the access to Account 1, which is usually only accessible once members turn 55 years old, under the i-Sinar facility, covering active members who have lost their jobs, given no-pay leave, or have no other source of income.

Earlier before, the government had announced a similar initiative in Budget 2021, i-Lestari, which allowed contributors to withdraw RM500 per month from their EPF Account 1, up to RM6,000 a year.

The i-Sinar initiative will now benefit two million eligible members from the 600,000 people originally, with a total estimated RM14 billion to be made available. Eligible members can start applying in December 2020; the advance will be credited into members' bank accounts in January 2021.

But EPF, telling the media, wanted to clarify that the initiative isn’t a “withdrawal" but rather an "advance," noting that members will still need to replenish the amount withdrawn - in contrast to the measure announced in Budget 2021, which allows contributors to withdraw RM500 per month from their EPF Account 1, up to RM6,000 a year.

The i-Sinar initiative advances details

The proposal to allow members of the EPF to withdraw their savings from Account 1, as outlined in Budget 2021, is unprecedented and has been met with mixed reviews. Economists told the Edge that the move is not a good idea as members already lacked a sufficient amount for their retirement.

“I don’t see it as a good idea to allow the withdrawal of the already meagre retirement savings of the low- and middle-income groups,” Dr Yeah Kim Leng, professor of economics at Sunway University told the Edge, describing the move as akin to “kicking the can down the road.”

Whilst under normal circumstances, MFPC has advocated that savings must not be withdrawn for current needs. However, they admit that this is an unprecedented crisis that has significantly impacted many Malaysians, thus, relaxing their views on the matter.

“As such, we are of the opinion that the move to allow RM500 per month for individuals for a maximum of 12-months is in good faith as it is only being allowed for individuals who have lost their jobs; and it’s an optional actionable solution based on individual circumstance and need,” Kwo said.

It goes without saying that retirement savings is extremely crucial for an individual. In fact, the earlier you start saving and investing for your retirement, the better because the effects of compounding interest will ensure that you would be able to enjoy a comfortable retirement.

Related: To Malaysians, From Malaysians: Do Better For Your Retirement

Reduction of the individual EPF Contribution Rate from 11% to 9%

The government introduced this reduced contribution rate to give individuals the flexibility to channel their disposable income elsewhere such as other expenditures, personal savings or other more favourable instruments.

“From a macro perspective, this move by the government is necessary so that more Malaysians would have higher disposable income that could help the country’s economy,” Kwo said. “We, however, are of the view that active contributors who do not need the extra 2% to be used as disposable income, to retain the same contribution rate. Alternatively, channelling the savings into PRS could be an option to undertake.”

Private Retirement Scheme (PRS) tax relief extended

At some point, all of us will have to retire, the only question is when and at what age.

Whether you are on the verge of retirement or still many years away from it, do you have enough savings for retirement? Besides depending on the EPF contribution, another great way to save up for your retirement fund is the Private Retirement Scheme (PRS).

Launched in July 2012 by the Private Pension Administrator Malaysia (PPA), the central administrator of PRS, the goal of the retirement scheme is to offer Malaysian employees and the self-employed an additional avenue to save for their retirement. It also offers an opportunity for employers to make additional voluntary contributions towards the retirement savings of their employees.

MFPC supports the move to extend the RM3,000 yearly tax relief for the scheme until the 2025 assessment.

“The prolonging of the tax exemption of RM3000 for the scheme until the year 2025 helps an individual save for their retirement and be rewarded by a yearly tax-deductible amount,” Kwo said.

“Since the formation of the Private Pension Administrator, the second pillar of retirement savings in Malaysia, the Council has strongly advocated for Malaysians to use the medium as one of the methods of planning for their retirement savings,” he added.

Targeted moratorium for individual borrowers and businesses

Though there would not be a continuation of a blanket moratorium, the government will extend and enhance the Targeted Loan Repayment Assistance (TRA), allowing B40 borrowers to get 50% off for six months. Meanwhile, flexi payment is also available for M40 borrowers who lost income.

The enhanced targeted assistance programme is available for B40 individuals who are recipients of the Bantuan Sara Hidup (BSH)/Bantuan Prihatin Rakyat (BPR) and SMEs, more specifically microenterprises for facilities with approved amounts of up to RM150,000.

Borrowers in both individual and business categories may request to defer their monthly instalments for three months, or reduce it by 50% for six months. This assistance will be available to eligible borrowers between 23 November 2020 and 30 June 2021.

BNM has assured borrowers that assistance would still be eligible for those who choose to decline repayment assistance for now, as they would still be able to apply for targeted assistance throughout 2020 and into 2021, especially if their financial circumstances change for the worse in the future.

Related: Bank Negara Malaysia Reassures Borrowers Repayment Assistance To Continue Until Next Year

So far, there are 650,000 applications for the targeted moratorium that was effected on 1 October, of which 98% had been approved, according to Finance Deputy Minister I Datuk Abd Rahim Bakri at the Dewan Rakyat. Out of the approved applications, 40% were for moratorium extension.

Based on self-declarations and discussions with the banks, Kwo said the extension of the moratorium for individuals who are affected is essential, especially as latest official data show that 26% of Malaysians are workers in the gig economy.

“We, however, forewarn the prolonging of any such loans with an expanded interest payment period must be avoided and only undertaken after a proper review of an individual’s cash flow position,” he said.

“In our view, the initiative to extend the targeted moratorium is in the best interest of both the banking institutions and those truly affected. One must be aware that the deferment is not a windfall, rather, all loans must be paid over a course of a longer time frame. We are aware that certain individuals working in certain industries may be worse off affected, and as such, the ability to make payments will very much depend on their own cash flow management,” he said.

Helping Malaysians upskill or reskill through professional certificate programmes

The government has allocated RM1 billion for reskilling and upskilling programmes, which is expected to benefit 200,000 trainees.

“The enlarged focus of professional programmes to encourage adult learning could benefit the Malaysian workforce or unemployed youths,” Kwo said.

“Under the KPT-PACE includes programmes related to financial planning such as the Council’s Registered Financial Planner (RFP) and Shariah Registered Financial Planner programmes. A programme on financial planning will help prospective participants learn how to manage their finances better. The tax relief measure to undertake the study of the programme will be further encouragement for individuals and for employers,” he said.

Among the programmes include:

• RM150 million for KPT-PACE
  • RM3,000 vouchers will be offered to 50,000 graduates who take up professional certificates.
• RM100 million for HRDF
  • Training programmes with private sector employers.
• RM100 million for IRDA and SEDIA
  • Expected to benefit the Sabahan and Johoreans workforce that is lost due to border closures.
• RM30 million for PERHEBAT
  • Expected to benefit 12,000 veteran soldiers.

The government is also planning to spend about RM3.7 billion to create 500,000 jobs through a scheme known as JanaKerja.

A separate scheme, known as PenjanaKerjaya and currently handled by SOCSO, will also be deployed to encourage the employment of disabled, long-term unemployed and retrenched workers, and local workers in sectors with a high reliance on foreign workers; RM2 billion is allocated to the hiring incentive programme under this scheme.

With tourism being one of the worst-hit sectors due to the COVID-19 pandemic, the government also plans to retrain and provide job placements for 8,000 airline staff; the initiative will cost RM50 million.

For a full list of job-related benefits from the budget, check our recent coverage of Budget 2021.

“The Council is pleased with the formation of a National Employment Council and the Janakerja initiatives to help unemployment and underemployment in the society as job creations are fundamental during such times that we are in,” Kwo said.

How can Malaysians persevere through the COVID-19 financial storm?

To weather through the financial storm that we are currently experiencing, MFPC emphasises on the importance of having sound financial literacy, which is a combination of financial knowledge, awareness and skills.

“It is in our view, should individuals be aware of managing their budget prudently, they would be able to save more through the slew of measures announced geared towards alleviating the burden of the rakyat and stimulating the Malaysian economy, in light of challenging economic times,” Kwo said.

The savings from such measures could be best utilised by the rakyat by preparing individual emergency funds of at least 6-12 months of one’s monthly earnings, Kwo said. This, he said, could help them be prepared for any unforeseen circumstances and to avoid being in a financially distressed position.

At the same time, MFPC reiterates their commitment to helping Malaysians better manage their money through their progressional programmes and series of free public financial literacy initiatives.

“They are very humbling experiences for us, we noticed from our previous sessions that the participants are ordinary Malaysians from all walks of life who simply want to be able to know how they could manage their money, invest their money, and protect their savings and plan for the future,” he said.

MFPC’s next free public literacy programme is on 21 November 2020. To sign up, please visit their dedicated page.

“We believe that enhancing financial literacy is about bringing people into the financial mainstream so that they are able to make well-informed decisions regarding their earnings, spending, savings and investments,” Kwo said.