Provident fund poser

When the financial impact differs for different working classes, why must blanket financial assistance be extended to all and sundry?

THE unprecedented economic shock due to the Covid-19 pandemic has impacted all and sundry. However, the extent of the adverse effects the lockdown measures have had on each and every segment of the working class differs.

When the financial impact differs for different working classes, why must blanket financial assistance be extended to all and sundry?

That is the crux of the matter when it comes to allowing unconditional withdrawals from the Employees Provident Fund (EPF) and extending a blanket moratorium on repayment of bank loans to all and sundry.

Former prime minister Datuk Seri Najib Tun Razak has successfully put forward an argument for the EPF to allow contributors affected by the pandemic to withdraw from Account 1, which previously was considered sacred and cannot be touched until one reaches the age of 55 years old.

He wants no conditions attached for contributors wanting to withdraw from Account 1. Meaning even those not affected can access the cash.

Najib has also gone on the over-drive calling on the government to coerce banks to extend the blanket moratorium on all loans until the movement control order (MCO) is over. One of his reasons is that banks have been profitable and they can afford to give back some to society.

Bank Negara and the banks are resisting the pressure. But Najib’s policies of “cash is king” have endeared among the majority of the lower income to the extent that the mismanagement of 1Malaysia Development Bhd, a fund under his watch that accumulated debts of RM30bil, is forgotten.

Employees in the civil service, government agencies, government-linked companies, large and medium-sized corporations and some industries such as glove and packaging manufacturers are not as badly affected as others.

Civil servants have not had any cuts in their salaries. Outside the civil service, the salary reductions are between 10% to 20% for high-income earners getting RM10,000 and above per month. Bonuses and allowances are cut.

The work-from-home arrangement should help the managerial staff save some expenses. They save on transport costs, don’t need to spend a lot on coffee and lunch breaks and after-work hours at the pub or eateries with colleagues.

The segments of people who have been most affected by the pandemic are those in the lower income bracket getting less than RM5,000.

It is especially worse for entertainment and event management companies, bars, restaurants, tour and cruise operators and airlines.

The services sector, which employs a large number of Malaysians, has seen a collapse in businesses due to the MCO.

Another sector affected is the informal economy that is estimated at one-third of the economic system. People in the informal economy do not pay taxes and largely do not contribute to the EPF.

They have housing and car loans that were taken based on their income from the small businesses that they manage.

Businesses have generally dropped by one third for the informal economy. As for employees in the services sector, many are without a job or having less work in hand since March this year.

There are groups of people employed who really need help. Towards this end, what Najib professes is not wrong. Who cares about retirement needs when there is no money to put food on the table. They want money now.

But financial assistance has to be targeted towards this group. It cannot be open to all and sundry as there would be abuse which would come back to haunt the government much later.

When the EPF introduced the i-Lestari in April this year, many who did not need the RM500 monthly withdrawals from Account 2 latched on to the scheme. Based on the latest published numbers, 4.7 million contributors withdrew a total amount of RM11.6bil under the scheme.

Were all 4.7 million members affected? Certainly it was not the case. But many took advantage because there are no restrictions and they could access cash easily.

For instance, employees in a logistics company whose income was not in any way affected, took advantage of the i-Lestari scheme. When asked, their answer was because it was easily available and they can access the extra cash today and not wait until they reach 50 years old.

One employee used the extra RM500 contribution to get married and another utilised the money to change his car.

Effectively, money that was meant as compulsory savings for their retirement was used for other purposes. It was not used to make ends meet during the pandemic.

The amount that members can withdraw under the i-Sinar scheme is much bigger than the i-Lestari. There is no doubting that the money would come in handy for those really affected by the pandemic.

But just like the i-Lestari, there would be many who are not affected and yet take the opportunity to withdraw part of their compulsory savings. That is human nature, especially for the poor.

There is no question that the money actually belongs to the contributors. Their employers contributed part of the money for it to be kept as savings when they retire.

For those who are without a job or having only a few days of work in a month, they certainly need the money today. The i-Sinar scheme would come in handy.

But how many contributors are really affected by the pandemic?

The EPF estimates that there should be about two million beneficiaries to the i-Sinar scheme as it comes with restrictions.

If a blanket approval is given, the number may well rise above 4 million, based on the number of people accessing extra cash via the i-Lestari scheme.

Similarly, if a blanket moratorium for repayment of bank loans is implemented, even the wealthy and those not affected by the pandemic would not pay their dues. It is not because they are unable to service the loans.

It’s simply because the moratorium allows them not to pay their dues.

The implications for a moratorium on bank loans can be severe. It affects the cash flow of banks and in turn, the amount of loans that financial institutions would be able to offer businesses.

Any financial schemes that come without restrictions will lead to abuse. It has always happened, especially in the case of EPF, since the days when the government allowed withdrawals to buy computers.

It is just human nature and it is waiting to happen if allowed.

M. Shanmugam is the former specialist editor of The Star. Views expressed here are the writer’s own.

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