PETALING JAYA: Experts are divided over the Employees Provident Fund’s plan to consider allowing more withdrawals from Account 2 for the government’s Base Medical and Health Insurance/ Takaful (MHIT) product.
While some call it beneficial, others say it is not a healthy practice.
The EPF is primarily a retirement savings mechanism, and its main purpose must remain the protection of its members’ financial security in old age, said Fomca secretary-general Dr Saravanan Thambirajah.
“Any proposal that allows withdrawals before retirement should therefore be approached with caution. While allowing withdrawals to purchase the Base Medical and Health Insurance/Takaful may appear helpful in addressing the rising cost of medical insurance, it also raises important concerns about the long-term impact on retirement savings,” he said.
From a consumer perspective, the intention behind the proposal is understandable.
Many Malaysians are facing increasing healthcare costs, and some individuals have difficulty maintaining private medical insurance due to ever-increasing premiums which they can no longer afford.
“A basic and standardised product such as the Base MHIT could help provide a more accessible form of medical protection,” he said.
However, he added that using EPF savings to pay for insurance premiums means people will be using their retirement funds to solve current financial pressures, weakening the safety net upon retirement.
“EPF savings grow over time through long-term contributions and compound dividends. When members withdraw funds earlier, even if the amount appears small, they lose the long-term growth those funds would have generated,” he said.
“Repeated withdrawals for recurring expenses such as insurance premiums may significantly affect the final retirement balance. In a country where many already have relatively low savings, this could create a larger problem of retirement inadequacy.”
Saravanan also expressed concern that withdrawals will be normalised and the EPF may increasingly be seen as a flexible source of funds rather than a protected retirement account.
Thus, he said, the government should explore alternatives to help Malaysians afford basic medical coverage. These include targeted subsidies, establishing a dedicated healthcare support fund, or assistance programmes that help lower- and middle-income groups obtain affordable medical insurance without relying on their EPF savings.
Economist Geoffrey Williams said even active EPF members do not have sufficient savings to draw on for insurance.
“At a time when people should be saving more, they are being encouraged to deplete their savings.
“This will not widen access for low-income and middle-income groups. Instead, high-income groups will switch to the cheaper MHIT, pay through EPF and save the monthly fees for their existing schemes. This will disrupt the market and may lead to a rise in underinsured people,” said Williams, who called it a “misstep”.
He too said the government could set up a non-contributory healthcare fund where the government pays for treatments at private hospitals and can control the prices and medical inflation.
Sunway University economics professor Dr Yeah Kim Leng, however, felt it was prudent for part of the retirement savings to be used for long-term medical insurance.
“This will enhance health protection and access to both public and private healthcare. It will also reduce overcrowding in government hospitals and clinics,” he said.
Moreover, retirees without the health coverage provided by employers while working can continue to enjoy coverage under the MHIT, which is likely to be available past retirement age.
For most people, the retirement phase is typically accompanied by higher medical spending,” he added.
The Base MHIT framework, released by Bank Negara on Jan 22, introduces a standardised, voluntary insurance product aimed at Malaysians who are uninsured or facing steep premium hikes.
It is intended to standardise baseline coverage across insurers and takaful operators, improving portability and price transparency.
