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NOVEMBER 2 — Indeed this is an unprecedented time, which is why instead of succumbing to panic-driven policies (such as allowing a huge amount of withdrawal from EPF Account 1), we should make careful plans to provide unprecedented assistance to those who really need it, and in a way that prevents wastage by those with poor financial literacy, that may undermine their own future social safety net.
NST reported that Umno youth chief Datuk Asyraf Wajdi Dusuki and former prime minister Datuk Seri Najib Razak have called on the government to allow EPF contributors to withdraw their savings from Account 1 with a minimum amount of RM5,000 up to a maximum amount of RM10,000 at one go.
Asyraf Wajdi added that a total cash flow of RM40 billion would be available should four million contributors be allowed to withdraw RM10,000 each. But from the perspective of EPF, it would also mean losing funds worth RM40 billion.
As tempting and convenient this sounds for the contributors given that they can get fast cash, the withdrawals would affect the cash flow that the fund management institution can sustain for the people in the future through investment activities.
If this proposal is pursued, and if the contributors are allowed to perform a “one-off” RM10,000 withdrawal from their accounts, it may create a significantly unhealthy cash balance that is unsustainable for the government to continue generating income for the country, fund government spending for the people and grow the rakyat’s retirement savings.
This is a critical matter especially in these unprecedented times where the government needs to take unprecedented measures in its assistances.
Although an exact figure of total collection from EPF monthly contribution is yet to be available for this year, RM40 billion worth of savings withdrawal is a huge sum of money and as reportedly mentioned by EPF CEO Alizakri, access to EPF Account 2 via i-Lestari had already resulted in withdrawals of more than RM11 billion to more than 4.7 million members since April this year.
This is also given that there is already an optional reduction in EPF contribution rate from 11 per cent to 7 per cent beginning April this year.
EPF savings are created for the future. A large withdrawal from Account 1 now would sacrifice future safety net to address near-term temporary expenses mostly attributed to Covid-19, which may translate into larger problems as people start to age. This is particularly true for Malaysia as it has an ageing population.
The government is already planning for Covid-19 vaccinations plans in the upcoming Budget 2021. A successful nationwide vaccination plan is expected to provide the means for normalisation and bring the economy back on track.
Retirement savings is a longer term safety net that should not be eroded due to what could be a temporary problem, albeit a serious one. Of course, those who have lost their jobs and have no other sources of funds may have no choice.
Therefore, instead of a blanket approval for all, this should be limited to individuals that can prove loss of job or a serious reduction in income. Allowing all workers who still have sources of income to withdraw from Account 1 would mean gambling their long-term financial security.
As stated by EPF Operations Division Deputy CEO Datuk Mohd Naim Daruwish, around 54 per cent of EPF contributors aged 54 have savings less than RM50,000 for retirement.
Let’s say some of them with RM49,000 worth of savings opt to withdraw up to RM10,000 at one go, they will then be left with RM39,000 to last for the coming years.
Implementation should also be made as a temporary measure, and capped according to age group. Perhaps a staggered withdrawal over 6 months can be allowed for members aged 40 and above with total withdrawal not exceeding 20 per cent of the total savings. For those aged below 40, a higher cap could be considered at 30 per cent of total savings.
These control measures are important as some people may not have the financial acumen to plan their financials properly — jeopardising their own future.
Nonetheless, are there alternatives to this Account 1 proposal? The answer is yes.
As mentioned before, the government, through EPF, had embarked on relief measures through i-Lestari programme by allowing members to withdraw between RM50 to RM500 a month from Account 2, subject to funds available.
Since the pandemic, the government has provided abundant direct financial aid through various initiatives such as Prihatin, Prihatin SME+, Penjana, and Kita Prihatin.
Alizakri also mentioned that these initiatives have amounted to RM55 billion for all income groups particularly B40 and M40. The government has been empathetic to the needs of the people since the beginning and would continue to do so.
Alizakri also pointed that their Retirement Advisory Service (RAS) officers can help members make the necessary financial planning, and would provide any readily available assistance in helping members to better navigate through these trying times.
The government has thus far continued to disburse financial aid to the people, such as through Bantuan Prihatin Nasional payouts. Prime Minister Tan Sri Muhyiddin commented on the Account 1 withdrawal proposal, whereby he posits that this is challenging to implement as the government had already disbursed billions in cash aid to ease the people’s burdens.
It was reported that the PM assured that more aid is expected to come as ‘billions more’ are targeted to disbursed to assist the rakyat.
So, it is advisable to make full use of the existing incentives alongside improvements in the awareness level of the available incentives. Let’s see how Budget 2021 turns out, and together assess the post-Covid future with rationality before pressing the panic button at the cost of future social safety net.
* Ameen Kamal and Sofea Azahar are with the research team of think-tank EMIR Research.
** This is the personal opinion of the writer(s) or organisation(s) and does not necessarily represent the views of Malay Mail.