By Chee Jo-Ey
THE government recently announced additional measures to help Malaysians cope with the challenging times amidst the Covid-19 pandemic and the ensuing Movement Control Order.
These include allowing Employees Provident Fund (EPF) members below the age of 55 to withdraw up to RM500 a month for 12 months from their Account 2.
Members can apply for the withdrawal via the i-Lestari Account 2 Withdrawal Scheme beginning April 1 and the savings will be deposited into their bank accounts from May 1.
EPF CEO Tunku Alizakri Alias said the decision to allow withdrawals from the retirement fund was considered carefully after weighing the well-being of its millions of members and safeguarding their savings.
The withdrawal scheme is in addition to the option for EPF members to reduce their contribution rate to the retirement savings fund from 11% to 7% under the government’s economic stimulus package announced on Feb 27. The objective of a stimulus package is to reinvigorate the economy by boosting spending.
However, one needs to be clear that this is not a form of financial aid to Malaysians in need by the government. The money comes out of the workers’ own retirement fund, so if you apply for the monthly withdrawal, you are using cash meant for your future, not to mention, the EPF dividends lost.
I understand we’re in a time of crisis but is it wise to dip into the honey pot time after time? Isn’t there anything else the government can do for those in need?
Malaysian Institute of Economic Research senior research fellow Dr Shankaran Nambiar said: “The measure shows the government’s willingness to extend support but it is grossly inadequate. Besides, this instrument is of use only for those who are able to make EPF withdrawals.
“It does not cover those who do not make EPF contributions. Labour in the informal sector and casual labour will be seriously hit by the outbreak. The government has not shown any interest in putting in place social safety nets and that inadequacy is showing up now.”
Sunway University Business School economics professor Dr Yeah Kim Leng said: “For some, especially low-income households with meagre savings and many mouths to feed, the EPF withdrawal is a lifeline.
“Since the withdrawal will dip into the savings for retirement, contributors should only use it as a last resort. They should explore other savings and borrowing means given the prevailing low interest rate compared to higher dividend rate from EPF as well as income support from the government.
“The Bantuan Sara Hidup (BSH) could be expanded, perhaps covering certain segments of M40 households. A special livelihood offset for the Movement Control Order (MCO) period could be provided for part-time employees and the self-employed such as small traders and freelancers including those in e-hailing, home delivery and other service jobs.”
EPF is known to offer some of the highest dividends in the country and such dividends should not be foregone easily.
Take, for example, Mr A who earns a monthly salary of RM4,000. EPF declared a dividend of 5.45% for 2019. The reduction of four percentage points from 11% to 7% translates to Mr A contributing RM160 less to his retirement savings, with a loss of RM8.72 in dividend every month (assuming a dividend rate of 5.45%). By December 2020, Mr A would have contributed RM1,440 less to his EPF with a loss of RM78.48 in dividends. This means he would have around RM1,520 less in his savings.
Now, suppose Mr A decides to apply for the monthly withdrawal of RM500 as well and the money would be deducted from April to December. Mr A would have withdrawn a total of RM4,500 from his retirement savings by the end of the year with a loss of RM245.25 in dividends. In total, he would have contributed RM5,940 less to his EPF with a loss of RM323.73 in dividends by year-end.
Although the monthly withdrawal will provide financial relief to many, it is important for Malaysians to weigh the pros and cons before dipping into their savings. The main purpose of the EPF is to help ensure Malaysians are financially prepared for their retirement. The people should consider the monthly withdrawal as a last resort and only opt for it after pursuing all other avenues of financial aid. – March 24, 2020