This article first appeared in The Edge Malaysia Weekly on November 9, 2020 - November 15, 2020
A Budget 2021 proposal that would allow members of the Employees Provident Fund (EPF) to withdraw their savings from Account 1 is unprecedented and not a good idea as most of them already lack a sufficient amount for their retirement, economists say.
Even EPF, which has been urging members to ensure they have enough savings for their retirement, concedes that it is a tough decision to allow such withdrawals, notwithstanding the complexity of the Covid-19 pandemic and economic morass.
“Allowing members to access their EPF retirement savings other than what is provided for under the EPF Act 1991 is unprecedented. Account 1 (70% of savings) has always been designated for retirement while Account 2 (30% of savings) is meant for discretionary withdrawals,” its CEO Tunku Alizakri Alias says in a statement.
Dr Yeah Kim Leng, professor of economics at Sunway University, describes the move as akin to “kicking the can down the road”. “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,” he says.
Yeah argues that it would have been better for Putrajaya to take on the burden and bite the bullet now by extending more direct financial assistance and providing low- or no-interest loans to individuals in dire need. “The repayment will help to instil household budget discipline while the EPF savings will generate secure and better returns that are crucial in the long term for the country to avoid an ‘old-age crisis’, if we are not already facing one for a growing number of households.”
Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz says the withdrawal facility will be done on a targeted basis of RM500 a month, or a total of RM6,000 over a 12-month period. “This withdrawal will assist members who have lost their jobs. It is expected to lighten the financial burden of about 600,000 affected contributors. Taking into account both i-Lestari and this Account 1 withdrawal facility, the total allowed withdrawal will be up to RM12,000. It is projected that total withdrawals from Account 1 will involve RM4 billion. Eligible contributors can apply beginning January 2021.”
The country’s biggest pension fund says further details on the Account 1 withdrawal will be announced by Nov 11.
RHB Research Institute chief Asean economist Peck Boon Soon believes there is no urgency or need to allow further withdrawal from the EPF given that the government has been providing cash handouts to the lower- and middle-income groups. “Savings are for the future. People have already been allowed to withdraw through the i-Lestari facility. There are also various schemes that help people rejoin the workforce. So, if possible, we should not allow this,” he stresses.
The i-Lestari facility allows EPF members aged 55 and below to withdraw between RM50 and RM500 a month for 12 months until March 31, 2021, subject to availability of funds in their Account 2.
Peck says the economic impact from the EPF Account 1 withdrawals alone will not be significant as the total projected withdrawal is only RM4 billion. “But if you add the reduction in employees’ EPF contribution and the cash handouts, then it will generate a positive impact on overall consumer spending in the country.”
Employees have been allowed to voluntarily reduce their mandated share of contribution to the fund to 7% from 11% for the April to December 2020 period. However, from January to December next year, the minimum statutory contribution rate for employees will be raised to 9%.
The EPF stresses that the additional withdrawal facility is very specific and targeted at members who really need the cash relief. “This will be a short-term and once-in-a-lifetime facility providing some measure of relief for the most vulnerable and unprotected groups, while maintaining the EPF’s mandate to safeguard members’ retirement savings.”
The fund is also looking to allow members to withdraw from Account 2 to purchase insurance and takaful products covering life/family and critical illness from approved insurance and takaful operators. “The products, which will be offered through i-Akaun, will be customised for EPF members at affordable premiums and come with additional features,” it says.
“All these [measures] should help safeguard the financial well-being of the rakyat, particularly the low-income group, while the sustained consumer consumption should help to drive economic recovery,” says AmInvestment Bank.
EPF stresses that while the measures address members’ immediate concerns and cover the short-term gaps during this unprecedented health and economic crisis, steps must be taken to urgently address the shortcomings in the country’s social protection system, which the pandemic has revealed to be inadequate in addressing the social well-being of Malaysians.
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