IN weathering the unprecedented pandemic crisis which does not appear to be ending anytime soon, people are trying to search for all avenues to make ends meet.
This includes the decision to use up savings under the Employees Provident Fund (EPF) which have been reserved for retirement. Although it is undeniable that empathy for the unfortunate is crucial during these trying times, there still needs to be control or vigilance over this initiative.
As known to nearly all, the idea of one-off withdrawals from EPF Account 1 started last year when it was mooted by some politicians.
It was considered and announced during the tabling of Budget 2021 as i-Sinar but implemented on a targeted basis, only for those who lost their jobs – RM500 per month with a total up to RM6,000 over 12 months.
This had resulted in mixed reactions, mainly because it was deemed not enough and more should have been done. Hence, the conditions were later revised and announced on Nov 16 with an expansion in coverage from the initial 600,000 beneficiaries to two million members, covering those who lost their jobs, were on unpaid leave and had no source of income.
Nonetheless, the revisions did not stop there as the coverage was again expanded to eight million members as announced on Dec 2, and recently, it was reported that EPF is working on the conditions for the i-Sinar facility.
Findings from Emir Research’s poll conducted in the final quarter of 2020 revealed that a large share of respondents was worried about their socioeconomic conditions due to the pandemic – losing jobs (81%), inadequate incomes (79%) and mental health (75%).
Therefore, it is clear that something needs to be done to continually try to manage the pessimistic sentiments of the people.
Despite efforts to support affected people with these revisions, it is also important to consider certain possible consequences or Malaysian-specific challenges which could result from this flexibility.
One major challenge to be considered is poor financial literacy among Malaysians.
Based on Bank Negara’s Financial Capability and Inclusion Demand Side Survey 2018, one-third of Malaysians stated that they had low knowledge when it comes to finances, especially among lower income households.
One-tenth of Malaysians also believed that they were not disciplined in monitoring and managing their finances, with 84% saved on a regular basis only for a short-term.
More than half of Malaysians expressed difficulties in raising RM1,000 as emergency funds.
When it comes to retirement savings, 41% said that they would be relying on EPF savings as their main source of income but nearly 50% of respondents were not confident of having sufficient or sustainable income after retirement.
The other concern is the poor social safety net for workers in the informal sector as their financial status might not be as stable as employees in the formal sector.
Data in 2019 showed that employment in the informal sector made up 8.3% of the total employment in Malaysia (1.26 million) and since the pandemic, it can be observed that more people are going into the informal sector.
Although they are encouraged to voluntarily contribute to their retirement savings through EPF’s i-Saraan scheme, it appears that the number of people contributing is low, and according to the Deputy Finance Minister II Mohd Shahar Abdullah, it is “not encouraging”.
A local English daily reported on Sept 12 that there was less than 10% of 2.7 million self-employed individuals who contributed to the scheme and only 18% of them contributed consistently.
Therefore, any permission to withdraw savings without conditions for informal sector workers would likely put their unstable savings at risk given the nature of job and salary levels. Those who are not contributors still would not benefit from this initiative and they would be depending on other stimulus measures.
Eligible members need to be clearly informed about the status of their savings and the consequences of their withdrawals.
As mentioned in my previous article titled “Replace EPF withdrawals with long-term sustainable measures”, the role and function of EPF’s Retirement Advisory Services and or the Credit Counselling and Debt Management Agency need to be made known to members to enable them to utilise the services.
From the long-term perspective, prompt action needs to be taken to improve financial literacy of Malaysians, through early education to nurture in youngsters sound financial management.
Perhaps, something similar to the former government’s National Strategy for Financial Literacy (2019-2023) can be pursued.
This article is not meant to deny one’s right towards his or her own hard-earned savings but there needs to be a balanced approach when allowing withdrawals especially when the future remains uncertain.
The writer is Research Analyst at EMIR Research, a think tank focused on strategic policy recommendations based on rigorous research.Comments: email@example.com