EPF balancing between retirement mandate and supporting members' economic survival

KUALA LUMPUR: The Employees Provident Fund (EPF) is evolving, shifting from a traditional focus on savings for retirement to a delicate balancing act between ensuring adequate retirement savings and supporting the economic survival of their members.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said this while discussing the much-talked-about Account 3, named Account Fleksibel by EPF, which comes into effect on May 11, 2024.

"We have observed that issues such as the cost of living, slow wage growth, and the proliferation of gig employment have significantly affected the livelihoods of Malaysians and EPF members.

"Thus, it’s a delicate balancing act between meeting adequate savings for retirement and ensuring the economic survival of EPF members,” he told Bernama.

Mohd Afzanizam also stressed that EPF is not the sole organisation responsible for societal betterment.

"We have policies on education, healthcare, entrepreneurship, and financial assistance in the form of subsidies, cash transfers, scholarships, grants, and microfinancing, among others, that will provide the right platform for Malaysians to lead better lives.

"These policies are governed by various ministries and government agencies. Therefore, we need to adopt a broader perspective on economic development,” he said.

Mohd Afzanizam further noted that EPF members might not benefit from the compounding effect of the investment principle in their EPF savings if they opt in for the Account Fleksibel and withdraw their contributions.

"Members really need to conduct due diligence before deciding to withdraw money.

"They should use this opportunity to take corrective action when facing higher indebtedness. I believe the Account Fleksibel should help members improve their current financial standing.

"Although this move will enable members to have higher disposable income, it requires members to be disciplined in their use of Akaun Fleksibel,” he concluded.

Meanwhile, Universiti Teknologi MARA (UiTM) Arshad Ayub Graduate Business School (AAGBS) senior lecturer Professor Tan Peck Leong said Malaysia is transitioning into an ageing nation and life expectancy is on the rise due to advancements in healthcare.

"It's crucial to recognise that today's actions will profoundly impact tomorrow's financial security and retirees will require substantial financial resources to sustain themselves.

"Withdrawals should only be considered for essential long-term investments such as education, housing, or medical emergencies. Frivolous spending, such as on luxury items or vacations, should not be funded through EPF withdrawals,” he said.

In essence, Tan said the EPF should be treated as a compulsory long-term savings vehicle.

"Considering the increasing cost of living and inflation, maintaining a robust retirement fund is essential for future financial stability.

"Therefore, prudent financial planning dictates that EPF withdrawals should be reserved for genuine necessities, ensuring a secure financial future for all Malaysians,” he said.

During an editors’ briefing ahead of the announcement, EPF chief executive officer Ahmad Zulqarnain Onn said: "We encourage people not to do so (opt-in) because it is important to save for (one’s) old age, but we understand that flexibility is desired, and from time to time, (one) may need to access (one’s) savings to pay for unexpected expenses.”

He cautioned that if every EPF member were to opt in, the total fund that would be moved to Account Fleksibel would amount to RM57 billion, of which about RM25 billion would be expected to be withdrawn in the first year.

Akaun Fleksibel is a new account that is optional for its 16.07 million members. It provides flexibility for short-term financial needs; savings from this account can be withdrawn at any time according to members’ needs.

Effective May 11, 2024, all EPF members under the age of 55 will have their accounts restructured into three accounts, namely Akaun Persaraan, Akaun Sejahtera and Akaun Fleksibel. - Bernama