Using EPF savings as collateral contradicts concept of retirement funds, says Dr Wee

KUALA LUMPUR: The proposal to use Employees Provident Fund (EPF) savings as collateral for bank loans may go against the original objective of retirement funds - which is to provide a financial safety net for retirees, says Datuk Seri Dr Wee Ka Siong (BN-Ayer Hitam).

He said accumulated bank loan interest rates were likely to worsen the financial burden on borrowers.

"This will bring more problems because accumulated interest will be higher than the (average) fixed deposit rate of 4%," he said, adding that borrowers unable to service their loans would have their savings depleted.

"This may go against the EPF's original objective and the EPF Act which is to protect Malaysians upon retirement," said Dr Wee during his winding-up speech on Budget 2023 at the committee stage in Parliament on Monday (March 13).

During the policy stage ministerial winding-up sessions in Parliament last Thursday (March 9), Prime Minister Datuk Seri Anwar Ibrahim announced that the government would introduce a new method where EPF contributors who are in financial straits could seek bank loans using their EPF savings as collateral.

Dr Wee also said the proposal to credit RM500 into the accounts of those aged between 40 and 54 with less than RM10,000 in their EPF account 1, may cause discontent among other EPF contributors.

Dr Wee said inactive EPF contributors could benefit from the RM500 initiative.

"In this situation, active contributors may feel that they are not taken care of by the government despite making regular contributions," he said.

Deputy Finance Minister Datuk Seri Ahmad Maslan said the RM500 initiative consists of a RM1bil allocation that will benefit two million Malaysians.

Ahmad, during his winding-up speech, also reiterated Prime Minister Datuk Seri Anwar Ibrahim’s remarks that the use of EPF savings as collateral for loans does not violate the EPF Act.

“It can be done by those with lots of savings and who have to take loans. For example, funding the overseas education of their children,” added Ahmad.

Dr Wee then interjected and asked about the number of active and inactive contributors who will benefit from the RM500 initiative.

Ahmad said he will respond to Dr Wee in a written reply, as it involved several technical maters.

In Budget 2023, it was announced that EPF members aged between 40 and 54 and have less than RM10,000 in Account 1, will have RM500 credited into their respective accounts.

On March 9, the EPF said two million members aged between 40 and 54 have less than RM10,000 in savings.

It said 2.64 million members from the age group were inactive because they have not made contributions in recent years.