EPF Account 3 draws concerns over dividends

KUALA LUMPUR: A lower Employees Provident Fund (EPF) net dividend rate could materialise from its decision to introduce Account 3.

However, experts said the dividend rate is unlikely to be severely impacted from this move, given the stronger state of the economy today and lesser urgency of needing to withdraw funds for emergencies unlike during the Covid-19 pandemic period.

The soon-to-be introduced Account 3 or “flexible account” will allow withdrawal by members at any time with a minimum withdrawal amount of RM50 and a maximum of 10% of their savings.

There are concerns that dividends will be impacted since Account 3 is a shorter-tenured account type that requires funds to be on standby – and this is similar to a savings or current account in a bank which gives a near-zero return rate at present interest rates.

However, overall net dividend returns may be negligibly impacted since Account 3 would form only 10% of a person’s overall contribution.

Details of the EPF Account 3 are expected to be announced on April 25 and after this account goes live, new contributions into the EPF will be split where 75% will be put into Account 1, 15% into Account 2 and 10% into Account 3.

Currently, for members aged below 55, 70% of their EPF contributions will go into Account 1 and 30% into Account 2.

The expectations of potentially lower dividends from this move also aligns with former finance minister Tengku Datuk Seri Zafrul Abdul Aziz’s earlier statement that the EPF dividend rate in 2021 should have been higher at 6.7% compared with the 6.1% announced then.

He said this dividend would not have been impacted if there was no outflow of savings by its members.

Tengku Zafrul also reportedly said in March 2022 that an additional dividend of RM5.4bil could be distributed to all EPF members if previous withdrawals were not made.

Deputy Finance Minister Datuk Seri Ahmad Maslan said in February 2023 that a total of RM145bil was withdrawn from the EPF by 8.1 million members during the Covid-19 pandemic.

Tradeview Capital chief executive officer and founder Ng Zhu Hann acknowledged that there were concerns, especially among savers, of a potentially lower dividend rate from this move to introduce Account 3.

“While this concern is valid, it is not serious.

“Unlike what happened in 2021-2022 when there was a series of withdrawals allowed by the government, leading to an outflow from the EPF amounting to more than RM100bil and causing a knee-jerk reaction, the current scheme is limited to only 10% contribution sum and flexible withdrawals are only allowed for this account,” Ng told StarBiz.“So the short-term impact will be minimal and if any, I foresee the EPF will be able to better manage the fund allocation via the strategic asset allocation means to meet flexible withdrawals demands in the long term.

“This is also helpful for them to make planning or forecast when projecting returns and dividend payout,” he added.

While the official details are not out yet, he said it would be good if the EPF can provide an option to members to move monies from Account 3 to Account 2 or Account 1.

“I believe the dividend that the EPF will declare will not be affected significantly by Account 3’s introduction. If anything, it would shave off marginal basis points only,” Ng said.

He also said maintaining the status quo of only Account 1 and Account 2 would be the best case and instead of introducing Account 3, providing additional grounds for withdrawals under Account 2 may potentially be a better way forward.

“The EPF remains one of the best managed schemes in our country. Under the law, Clause 27 of EPF Act also provides a minimum guaranteed dividend per annum for EPF conventional accounts.

“That alone offers certainty and protection to members.

“There is no other scheme quite like it in the world,” Ng noted.

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