THIS is an unprecedented time, which is why instead of succumbing to panic-driven policies (such as allowing a huge amount of withdrawal from EPF Account 1), we should make careful plans to provide unprecedented assistance to those who really need it, and in a way that prevents wastage by those with poor financial literacy, that may undermine their own future social safety net.
An English daily reported that Umno Youth chief Datuk Dr Asyraf Wajdi Dusuki has 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 Wajdi added that a total cash flow of RM40 billion would be available should four million contributors be allowed to withdraw RM10,000 each. But from the perspective of EPF, it would also mean losing funds worth RM40 billion.
As tempting and convenient as this sounds for the contributors given that they can get fast cash, the withdrawals would affect the cash flow that the fund management institution can sustain for the people in the future through investment activities.
If this proposal is pursued, and if the contributors are allowed to perform a “one-off” RM10,000 withdrawal from their accounts, it may create a significantly unhealthy cash balance that 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 unprecedented measures.
Although an exact figure of total collection from EPF monthly contribution is yet to be available for this year, RM40 billion worth of savings withdrawal is a huge sum of money.
As reportedly mentioned by EPF CEO Tunku Alizakri Alias, access to EPF Account 2 via i-Lestari had already resulted in withdrawals of more than RM11 billion by more than 4.7 million members since April this year.
This is also given that there is already an optional reduction in EPF contribution rate from 11% to 7% beginning in April this year.
EPF savings are created for the future. A large withdrawal from Account 1 now would sacrifice future safety net to address near-term 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 vaccination 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 are a longer-term safety net that 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 that can prove loss of job or a serious reduction in income.
Allowing all workers who still have sources of income to withdraw from Account 1 would mean gambling their long-term financial security.
As stated by EPF operations division deputy CEO Datuk Mohd Naim Daruwish, around 54% of EPF contributors aged 54 have savings less than RM50,000 for retirement.
Let’s say some of them with RM49,000 worth of savings opt to withdraw RM10,000 at one go, they will then be left with RM39,000 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, thus jeopardising their own future.
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 i-Lestari programme by allowing members to withdraw between RM50 and 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 billion for all income groups particularly the B40 and M40.
The government has been empathetic to the needs of the people since the beginning and would continue to be so.
Alizakri also pointed out that EPF Retirement Advisory Service officers can help members with financial planning, and would help members navigate through these trying times.
The government has continued to disburse financial aid to the people, such as through Bantuan Prihatin Nasional payouts.
On the Account 1 withdrawal proposal, Prime Minister Tan Sri Muhyiddin Yassin posits that this is challenging to implement as the government had already disbursed billions in cash aid to ease the people’s burden.
Muhyiddin reportedly said 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 alongside improvements in the awareness level of the available incentives. Let’s see how Budget 2021 turns out, and together assess the post-Covid future rationally before pressing the panic button at the cost of future social safety net.
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.