Best not to touch EPF Account 1 savings


Just a month ago, the EPF had advised its members against withdrawing their savings from Account 1 to address tough challenges brought on by the Covid-19 pandemic outbreak. The same advice was also echoed by Prime Minister Tan Sri Muhyiddin Yassin initially.

THE government’s move to allow members of the Employees Provident Fund (EPF) access to their Account 1 for i-Sinar facility has received mixed reviews.

Just a month ago, the EPF had advised its members against withdrawing their savings from Account 1 to address tough challenges brought on by the Covid-19 pandemic outbreak.

The same advice was also echoed by Prime Minister Tan Sri Muhyiddin Yassin initially.

However, continued political pressure by some quarters had built up quickly and now, Account 1 withdrawals for up to RM10,000 are allowed as an option for about eight million EPF members.

According to Dr Yeah Kim Leng, (pic below) Professor of Economics at Sunway University Business School, a retirement fund should be the last resort to save a person from a precarious financial deadlock the individual is experiencing.

“Even if it means for the individual to have to take out a short-term loan to help him to stay afloat.

“This is given that the projected EPF dividends could be higher than the interest charges on some personal loans from the licensed financial institutions, ” Yeah told StarBiz.

He acknowledged that there are some individuals who are so financially strapped and “if there is no better option, then an EPF withdrawal can truly be categorised as a last resort and is justifiable.”

“But for those who still have the means to sustain themselves from the various cash assistance, if they can get by without the need to use the EPF – then this is a better option.”

Yeah stressed that retirement savings should be left alone as it would continue to grow in the long term.

There is also a concern that people might use the EPF Account 1 withdrawal option to splurge unnecessarily on unproductive spending or some tend to get scammed out of their retirement savings.

“There are some who may unknowingly be scammed or tricked into withdrawing only to see the money disappear later, ” he added.

Yeah also believes that the EPF has enough liquidity to meet the sudden increase in cash withdrawals during this period.

“The EPF fund size is large, so I believe the overall impact on the fund is quite small. I think their short-term instruments can be liquidated to meet up with this sudden demand, ” explained Yeah.

Since the i-Sinar facility is an unplanned event, he noted that there may be cases where investments in either equity and bonds may have to be liquidated below the market price or at a loss.

“This action will affect the overall performance of the EPF.”

Therefore, there should be a time limit to the withdrawals, Yeah said, adding that it should only be allowed until the middle of 2021 or until the economy recovered and gained its momentum again.

Meanwhile, fee-only financial planning company MyFP Services Sdn Bhd founder Robert Foo (pic below) said he found that some quarters were uneasy with the recent announcements.

“I think there is a silent majority who are genuinely concerned with the EPF Account 1 withdrawals.

“The EPF might have to sell its more profitable assets to meet up with the withdrawal liquidity demand.

“Then the less profitable assets would be left so the overall returns would be lower, ” he added.

Foo said what is happening figuratively is akin to a strong shaking of the EPF’s balance sheets, since this is an unforeseen event.

“Similar to an earthquake, a lot of people cannot see the long-term consequences but only the immediate consequences.

“They only see that they would be able to fulfill their loan installments and daily expenses.

“If they don’t plan (out of this situation), they would then hit a problem in the next 10 to 20 years, ” Foo pointed out.

Yeah concurred that the root of the issue is not being addressed properly, despite allowing the withdrawals from EPF Account 1.

“The problem is merely being postponed and will be addressed at a later time.

“Hence, the responsibility actually lies with the individuals to truly protect their hard-earned retirement savings, ” added Yeah.

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