Economists laud introduction of third EPF account

ECONOMISTS have praised the government for introducing a third Employees Provident Fund (EPF) account called “Akaun Fleksibel” to allow contributors under the age of 55 to withdraw their savings for their short-term financial needs.

Speaking to The Vibes, the experts said Putrajaya has responded responsibly over the matter and, at the same time, helped secure funds for retirement.

They noted the move will provide a quick fix for contributors who needed funds urgently.

EPF, in a statement last week, said that savings in the third account can be withdrawn anytime.

Account 1 will be renamed “Akaun Persaraan”. It is meant to accumulate savings that will serve as income during retirement. Account 2 will become “Akaun Sejahtera” to address life cycle needs that contribute to well-being during retirement.

The new third account will start with a zero balance. However, EPF contributors are given a one-time option between May 11 and August 31 to transfer part of the savings balance in their Akaun Sejahtera to Akaun Fleksibel.

Economist Azrul Azwar Ahmad Tajudin said EPF and the government responded responsibly and the third account will be able to cater to the short-term needs of contributors.

He noted that the government did not bow to pressure from certain quarters, saying that Putrajaya had conducted a thorough study before coming up with the third account decision.

“It was a responsible response from the government and, at the same time, it caters to the needs of contributors. There have been those who have been calling for the government to allow them to withdraw their EPF money and this latest initiative is a well-thought one.”

“The mentality of the people has changed over time. Last time, EPF money was considered as retirement money, but now many has taken a different stand and said that EPF money should not be kept until they reach their retirement age,” said the chief of corporate affairs at Aafiyat Holdings Sdn Bhd.

Muhammed Abdul Khalid of Universiti Kebangsaan Malaysia, on the other hand, described the third account as a “win-win proposition”.

The research fellow at the university’s Institute of Malaysia and International Studies said the allocation of funds under the new account structure strikes a “reasonable balance”.

“This strategy represents a middle ground and shouldn’t come as a surprise.”

“Once we opened the door for members to tap into their retirement savings as we did in 2020 and 2021, the demand for further withdrawals became almost inevitable,” Khalid said.

He also said Account 3 was a “less damaging solution” to the needs of members requiring access to cash.

“Had EPF not allowed the four withdrawals during the pandemic, amounting to approximately RM150 billion, the necessity for establishing Account 3 might not have arisen."

Monthly EPF contributions will be split three ways from May 11: 75% into Account 1 (Akaun Persaraan), 15% into Account 2 (Akaun Sejahtera), and 10% into Account 3 (Akaun Fleksibel).

Withdraw only when there is a necessity

Prof Yeah Kim Leng of Sunway University said the move to introduce a third account would resolve critical financial needs of the people, especially those in dire need of money.

However, the director of the Economic Studies Programme at the Jeffrey Cheah Institute on Southeast Asia said one must also consider the option as a last result.

“It was a reasonable move. Those in need of money do not need to borrow money with high cost. It is a useful way to use the savings and resolve financial issues but contributors must withdraw as a last result.

“Try and borrow from family members first and if they have to take the money from EPF, do not spend it on unnecessary stuff,” he added.

Yeah said that Putrajaya must also drive home the importance of having enough retirement savings.

“This is to avoid financial trouble in the future. The government has the responsibility to make sure the people do not fall under poverty once they retire. Therefore, financial literacy is needed,” he explained.

Under this opt-in scheme, members with savings exceeding RM3,000 in Akaun Sejahtera can have a third of their savings transferred to the new flexible account.

For members with savings of RM1,000 and below in Akaun Sejahtera, the full amount can be transferred to Akaun Fleksibel.

Previously, EPF members took out more than RM144.5 billion from 2020 to 2022 when the government allowed withdrawals to help them deal with financial hardships caused by Covid-19 lockdowns and job losses.

Median savings in the pension fund stood at just RM8,100 in 2022, less than half the level in 2016.

The EPF said that in October 2023, only 16.4% of members aged 50 to 54 had more than RM240,000 saved, and that just 3% of those 55 and older had more than this amount in their accounts.

But the government continues to face pressure from politicians to allow further withdrawals.

The EPF had RM1.05 trillion of assets under management as of September 2023.

Barjoyai Bardai from Universiti Tun Abdul Razak said the country will see a rise in its gross domestic product as consumers begin spending.

He said the account’s introduction is a good initiative but those with less EPF savings will end up with less retirement savings or no funds at all.

“Those with less than RM3,000 balance in their EPF will have trouble once they retire. But to stop them from withdrawing is also a problem because they are in need of financial aid,” said the academic. – April 28, 2024.