ALLOWING Employees’ Provident Fund (EPF) contributors to dip into their Account 1 savings is a bad idea as 71% of them have less than RM50,000 saved, said Malaysian Trades Union Congress (MTUC) president Abdul Halim Mansor.

Halim said the EPF Act 1991 states that the savings are meant for retirement and based on the life expectancy of an average Malaysian, it should last for at least 15 to 20 years.

“We do not have any assistance from the government after retirement,” Halim told The Malaysian Insight.

“The minimum we expect is RM150,000 to RM200,000 for a person to survive during retirement.”

Contributors who have been working for 10 years and below may not have much savings, he said.

Many may have depleted a substantial chunk of their savings by signing up for the i-Lestari programme, which allows them to withdraw up to RM500 a month from their Account 2 for a year, to alleviate the financial burden brought about by the Covid-19 pandemic.

“We have to go by the act. The act says it is the objective to have savings for their retirement. They will receive the money when they retire. Nobody can change that.

“What happens to the workers when they do not have any savings when they retire? Will the government fund them or provide any assistance?”

Halim said there is no guarantee that those who withdraw substantial amounts from their accounts will contribute more than the statutory amount to replenish their savings.

“Once you take it out, it is considered a loss,” he said.

Umno Youth chief Dr Asyraf Wajdi Dusuki recently urged  the government to consider allowing workers to withdraw from Account 1 to help them tide over the current difficult times.

He said the government could limit each withdrawal to RM5,000 or RM10,000. 

Former prime minister Najib Razak also echoed the call.

However, in discouraging contributors from touching Account 1, EPF CEO Tunku Alizakri Alias said 71% of EPF’s active contributors have less than RM50,000 in their account, which translates to RM208 a month for 20 years after retirement.

Areca Capital Sdn Bhd CEO Danny Wong said while it is fine to help the public, such moves must be studied carefully.

“Those with sizeable sums, like those in the T20 or some M40, may not need this. Those in the B40 and in the lower end of M40 may have little in their EPF and the fund is supposed to be for retirement.

“It should not be touched unless it involves the matter of livelihood,” Wong said.

Sunway University Business School Professor of Economics Dr Yeah Kim Leng said allowing withdrawals from Account 1 is not a good idea and is akin to “kicking the can down the road” given the already low household savings, especially among the low-income group.

“The government should consider increasing the direct income support under the Prihatin economic stimulus package or BSH (cost-of-living aid).

“If still insufficient, it could consider interest free loans as this will instil budget discipline over the loan period while enabling them to receive secure and higher returns to their EPF savings,” he said.

Liquid assets

Wong said EPF can afford withdrawals from Account 1 if it amounts to less than 7% of its investment assets.

The fund manager said since only 7.2% of EPF’s RM930 billion (as at June 2020) total fund size is in the form of money market instruments, this means that the pension fund has about RM67 billion in liquid assets.

“If the withdrawal from Account 1 is less than 7%, then it would not require EPF to liquidate its strategic assets like property or equities,” he said.

Wong, however, said there are other factors to be considered as well, including committed investments, withdrawals of retirees as well as public confidence towards EPF.

Asked whether the government or EPF could be concerned with the pressure on its bond holdings, Wong said this is one factor that could tie in with public confidence.

“That may trigger the public confidence as Bank Negara Malaysia has to expand its balance sheet (to buy the bonds) if the amount is bigger than expected,” he said.

Prime Minister Muhyiddin Yassin said it would be “difficult” to allow EPF Account 1 withdrawals and that the government has already given out billions of ringgit in aid.

The Account 1 savings are for financial security upon retirement, he said.

Alizakri said the request is a “hard one to deliver”.

“Accessing their hard-earned savings in Account 1 should not be the only way for our members to get cash in order to get through these very difficult times.” – November 2, 2020.