THERE could have been other ways to put cash in the hands of struggling Malaysians instead of allowing a fourth withdrawal from their Employees Provident Fund (EPF) accounts, an economist said.

These could have been an annuity scheme or a low-interest loan facility, economist Dr Yeah Kim Leng of Sunway University said.

Putrajaya yesterday announced it had approved a special RM10,000 withdrawal per contributor from the retirement fund.

This comes on the heels of three earlier withdrawal schemes the government introduced in the past two years to tide the people over during the Covid-19 epidemic.

The public and politicians on both sides of the divide demanded the latest withdrawal. Yeoh said Putrajaya’s decision to cave was not prudent and will have future consequences.

“If they have inadequate retirement savings, unless they have alternative sources of savings, they will be poor and part of the old-age poverty group. This will be socially distressing for the country to have a senior population that can’t sustain itself,” Yeah told The Malaysian Insight.

“This will be an issue, it is gradually happening already, due to the ageing population and the pandemic, whereby savings have been diminished.”

i-Lestari, i-Sinar and i-Citra facilities

The government first introduced the i-Lestari facility, which ran from April 2020 to March 2021. Contributors were allowed to withdraw a maximum of RM500 from their Account 2 savings for a maximum of 12 months. 

In total, RM20.8 billion was taken out by contributors.

Following i-Lestari, the i-Sinar programme was introduced from January to December 2021. This allowed contributors to withdraw RM10,000 from Account 1 savings. In total, RM58.7 million was withdrawn.

Lastly, the i-Citra facility, which ran from July 2021 to February 2022, allowed members to withdraw up to RM5,000 from Account 2. 

In the event they did not have enough funds in Account 2, they could tap into Account 1. Through this facility, RM21.4 billion was withdrawn by contributors.

In total, from all three facilities, RM110 billion was withdrawn from the retirement fund, benefitting 7.43 million contributors.

While initially hesitant, the government yesterday finally caved in to introduce another special withdrawal of RM10,000, citing the current needs of the people, despite resistance from the fund itself.

Prime Minister Ismail Sabri Yaakob, in making the announcement, however urged contributors to only tap into the savings if absolutely necessary.

The Finance Ministry and EPF are to provide further details on how to apply for the new facility. Yesterday evening, there were reports on Twitter that the EPF app and website were down, likely owing to people accessing the site to check their accounts.

What the latest withdrawal means for contributors

The latest withdrawal would mean reduced monies in contributors’ accounts, and less to spend in their retirement age.

EPF has said previously that the three earlier withdrawal facilities have led to 6.1 million members now having less than RM10,000 in their regiment fund.

Of that number, 3.6 million members have less than RM1,000.

Bumiputeras make up 78% of the withdrawal applicants. As a result, 4.4 million – or 54% of Bumiputera members – now have less than RM10,000. 

Additionally, two million – or 25% of Bumiputera members – have less than RM1,000.

Economist Yeah said what this means is that those retiring may have to continue working, or find alternative sources of funds to sustain themselves. 

“Or, they have to change their lifestyle and cope with lower income. 

“The other direct consequence is that this group will slide below the poverty line, below living income,” he said.

Impact on EPF

While EPF declared a 6.1% dividend for 2021 despite the outflow of funds, Finance Minister Tengku Zafrul Tengku Abdul Aziz said a higher return of 6.7% could have been achieved had it not been for the withdrawals.

Yeah said the impact on the dividend for this year will depend on how much more money is withdrawn through the latest facility.

“If there is substantial withdrawal, EPF will have to liquidate some investment and this may incur losses. It may impact their performance for this year,” Yeah said.

This is further exacerbated by the war in Ukraine, he added.

“The market is not doing well due to the war in Ukraine, financial markets are badly affected. It is not a good time to liquidate assets.

“(If EPF has to liquidate assets) it will affect dividend for the year because of the lower returns and potential losses they have to cover as well as lost opportunity cost in investing in other better returns.”

EPF, which accumulates RM2 billion from existing contributors monthly, may however, be able to use this to cover the new withdrawals, he said.

What could be done instead?

Instead of approving another withdrawal from EPF, Yeah said the government should have looked at alternative schemes like annuity to allow retirees a steady stream of income post-retirement.

“We need to educate the public to save enough for annuity during retirement. Life expectancy is increasing, this means that old-age poverty will increase steadily.

“Those who have not built their nest egg, they have to tighten their belts. Discipline is important. 

“The challenge is to build up emergency savings. They can focus on building this by targeting a certain spending level and work towards accumulating the savings that they plan to have when they retire. 

“Otherwise, they will have to cut back drastically on their standard of living.”

Besides annuity, Yeah said introducing a low-interest loan facility would have been a better idea than tapping into the retirement fund.

“It is financially more savvy to borrow so they can pay back gradually. 

“The government should have created a fund to provide loans at a subsidised rate and ensure all heads of households have not lost livelihood. 

“It is more productive and helpful than allowing for this withdrawal.” – March 17, 2022.