Implement matching deposit package conditions for Flexible EPF Accounts

THE Finance Ministry should implement a matching deposit incentive for its proposed Flexible EPF (Employees Provident Fund) account to encourage members to make savings or deposits voluntarily.

Aside from ensuring that the people have enough savings for retirement and to foster the habit of saving among the public, the MCA has also proposed that such flexible account is only subject to members who have reached the minimum savings level set by the EPF as well as to limit the amount of deposits to 3% of their total salary each month.

“The implementation of the Flexible EPF Account should also be done on an ‘opt-in’ basis where EPF members will be given the option to open this account only if they have met the specified conditions, for example, the minimum amount of savings level,” the party’s spokesperson Saw Yee Fung pointed out in a media statement.

“Finally, implementation of the Flexible EPF Account is seen to be more beneficial for retirees.”

Saw was commenting on the idea mooted by Prime Minister-cum-Finance Minister Datuk Seri Anwar Ibrahim while tabling Budget 2024 that a Flexible EPF account will be introduced where contributors can access it at any time.

The EPF currently has two accounts, namely Account 1 which cannot be accessed until retirement, and Account 2 where funds can be withdrawn for purposes such as education or payment for housing. Mandatory contribution from employee and employer is split 70:30 between Accounts 1 and 2.

It was reported in July that the EPF is mulling the setting up of a third account that can be accessible anytime with the roll-out expected in the next two years. Plans for an Account 3 have been mooted as far back as Budget 2019 but that did not materialise as per its scheduled timeline of 2Q 2020.

According to Saw, concerns nevertheless abound as this policy may have negative effects if it is not implemented properly.

“It is well-known that the Malaysian employee contribution rates are relatively low, and that the government’s move to allow EPF withdrawals several times during the COVID-19 pandemic has lowered the savings of contributors for their retirement,” opined Saw who holds a masters in Economy from Universiti Malaya.

“The absence of conditions like this (matching savings) will render the government’s move akin to using future money to solve today’s problems.

“This is not a sustainable solution, let alone when our country’s composition is steering towards becoming an aging population. If the elderly do not have enough savings, it will cause various social problems that will directly affect the country further.”

Recall that as of 2021, as many as 3.6 million EPF members have savings of under RM1,000 while another 6.1 million members have less than RM10,000. Hence, if the government allows flexible withdrawals for EPF, there should be conditions or incentive offers to ensure matching savings in their deposits.

“Instead of allowing EPF withdrawals on a ‘one-off’ or one-time basis for account holders, it is better to give them the option to continue saving in EPF and only withdraw the funds when they need it,” reckoned Saw.

“This will ensure that their remaining savings can continue to generate income through the dividends received, and thus avoid the problem where many retirees spend all their savings within two to three years of retirement.” – Oct 16, 2023

Main pic credit: Media Mulia

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