By Ameen Kamal and Sofea Azahar
INDEED this is an unprecedented time, which is why instead of succumbing to panic-driven policies, such as allowing a huge amount of withdrawal from the Employees Provident Fund’s (EPF) Account 1, we should make careful plans to provide exceptional assistance to those who really need it, and in a way which prevents wastage by those with poor financial literacy, that may undermine their own future social safety net.
NST reported that Umno youth chief Datuk Asyraf Wajdi Dusuki and former Prime Minister Datuk Seri Najib Tun Razak have called on the government to allow EPF contributors to withdraw their savings from Account 1, with a minimum amount of RM5,000 up to a maximum amount of RM10,000 at one go.
Asyraf added that a total cash flow of RM40 bil would be available should four million contributors be allowed to withdraw RM10,000 each. However, from EPF’s perspective, it would also mean losing funds worth RM40 bil.
As tempting and convenient this sounds for contributors, given that they can get fast cash, the withdrawals would affect the cash flow the fund management institution can sustain for the people in the future through investment activities.
If this proposal is pursued, and if contributors are allowed to perform a ‘one-off’ RM10,000 withdrawal from their accounts, it may create a significantly unhealthy cash balance which is unsustainable for the government to continue generating income for the country, fund government spending for the people and grow the rakyat’s retirement savings.
This is a critical matter especially in these unprecedented times where the government needs to take extraordinary measures in its assistance.
Although an exact figure of total collection from EPF monthly contribution is yet to be made available for this year, RM40 bil worth of savings withdrawal is a huge sum.
EPF CEO Alizakri Alias said access to EPF Account 2, via the i-Lestari programme, had already resulted in withdrawals of more than RM11 bil by more than 4.7 million members since April.
This is also given that there is already an optional reduction in EPF contribution rate from 11% to 7% in the same month.
EPF savings are designed for the future. A large withdrawal from Account 1 now would sacrifice future safety net to address short-term temporary expenses mostly attributed to COVID-19, which may translate into larger problems as people start to age. This is particularly true for Malaysia as it has an ageing population.
The government is already planning for COVID-19 vaccinations plans in the upcoming Budget 2021. A successful nationwide vaccination plan is expected to provide the means for normalisation and bring the economy back on track.
Retirement savings is a long-term safety net which should not be eroded due to what could be a temporary problem, albeit a serious one. Of course, those who have lost their jobs and have no other sources of funds may have no choice.
Therefore, instead of a blanket approval for all, this should be limited to individuals who can prove job loss or a serious reduction in income.
Allowing all workers who still have an income to withdraw from Account 1 would mean gambling their long-term financial security.
As stated by EPF Operations Division Deputy chief executive officer Datuk Mohd Naim Daruwish, around 54% of EPF contributors aged 54 have savings less than RM50,000 for retirement.
Let us say some of them with RM49,000 worth of savings opt to withdraw up to RM10,000 at one go, they will then be left with RM39,000 to last for the coming years.
Implementation should also be made as a temporary measure, and capped according to age group. Perhaps a staggered withdrawal over six months can be allowed for members aged 40 and above with total withdrawal not exceeding 20% of the total savings.
For those aged below 40, a higher cap could be considered at 30% of total savings.
These control measures are important as some people may not have the financial acumen to plan their financials properly and would only end up jeopardising their own future.
Nonetheless, are there alternatives to this Account 1 proposal? The answer is, yes.
As mentioned before, the government, through EPF, had embarked on relief measures through the i-Lestari programme by allowing members to withdraw between RM50 to RM500 a month from Account 2, subject to funds available.
Since the pandemic, the Government has provided abundant direct financial aid through various initiatives such as Prihatin, Prihatin SME+, Penjana, and Kita Prihatin.
Alizakri also mentioned that these initiatives have amounted to RM55 bil for all income groups, particularly the B40 and M40. The government has been empathetic to the needs of the people since the beginning and should continue to do so.
Alizakri also pointed that their Retirement Advisory Service (RAS) officers can help members make the necessary financial planning, and would provide available assistance in helping members to better navigate through these trying times.
The government has continued to disburse financial aid to the people, such as through the Bantuan Prihatin Nasional payouts. Prime Minister Tan Sri Muhyiddin Yassin commented on the Account 1 withdrawal proposal, whereby he said that it would be challenging to implement as the government had already disbursed billions in cash aid to ease the people’s burdens.
It was reported the prime minister assured that more aid is expected to come as ‘billions more’ are targeted to be disbursed to assist the rakyat.
So, it is advisable to make full use of the existing incentives, along with raising awareness of the available incentives. Let us see how Budget 2021 turns out, and
together assess the post COVID-19 future with rationality before pressing the panic button at the cost of our future social safety net. – Nov 2, 2020
Ameen Kamal and Sofea Azahar are part of the research team of EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.
