FINANCIAL advisers recommended that the Employees Provident Fund (EPF) introduce alternate withdrawal schemes to ensure retirees do not deplete their savings and can maintain them for better returns after they turn 55.

The experts also objected to prohibiting EPF members from withdrawing their full savings upon reaching 55 years of age, as is the case now.

There have been proposals for EPF to allow members who have turned 55 to make monthly withdrawals instead of lump-sum withdrawals so their finances are better protected.

Last week, Prime Minister Anwar Ibrahim said the government is finalising details of a proposal to make it mandatory for retirees to make monthly EPF withdrawals when they reach the age of 55.

EPF, however, said the proposed mandatory monthly withdrawal upon reaching the age of 55 will only apply to new members born in or after 2010, and those registered after the implementation date.

It said there will be no change for current lump-sum withdrawals at age 55 and 60 for existing members.

It is also mulling creating a third account, which would allow withdrawals to be made at any time.

On Monday, EPF chief strategy officer Nurhisham Hussein said third accounts will be implemented for new contributors within two years.

He said the proposal to introduce the account is to meet members’ emergency cash needs.

“Account 3 will function like a savings account. With this, we hope to meet the potential emergency cash needs of members,” he was quoted as saying during the special EPF media briefing.

Max Wealth Group financial planner Nicholas Chu said the proposal to limit withdrawals is to protect members so they do not suffer insufficient funds after a few years.

He said data released by EPF showed many members spend all their retirement funds within a short period.

“Some people think they have worked a lifetime, and now they want their funds to develop a business. Are the authorities going to stop their chances of doing that?

“I think EPF should allow members alternatives for managing their funds, (as) data tell us many people can’t manage their funds effectively.

“This (shows) there is a problem with financial (literacy) in our country,” he said.

He said it is vital there be a mechanism to protect members who lack knowledge about financial management.

“The purpose of this mechanism is to educate members on how to create a better retirement plan and learn to manage their retirement.”

He said EPF could let members who want to withdraw their funds undergo counselling first, or encourage them to continue saving.

Chu said previously, EPF chief executive Amir Hancha had suggested members aged 55 should be encouraged to withdraw their funds over time instead of making a one-time withdrawal.

This would help them continue saving and facilitate better post-retirement financial planning.

“This provides members with the opportunity to better manage their retirement funds, and with regular or monthly withdrawals, it lets members continue enjoying annual dividends.”

Easy to spend it all

Financial adviser Wong Chai Soon said the government’s proposal should be carefully scrutinised.

He said restricting withdrawals is a good idea because advanced countries, including Singapore, have adopted this system.

“People usually lack self-discipline. When we were young, without the encouragement of our parents, we would not take the initiative to do homework and study.

“When we grow up, if there is no system to guide us, then only a few people will have their financial affairs in place.

“If there is no EPF, I believe 95% of people will not have enough savings for retirement.

“If a person who can’t manage money suddenly gets a lot of money at the age of 55, it is easy to spend it in a short period of time.”

Wong said EPF’s data showed most people spend all of their pension within three to five years.

“The average life expectancy for women is now 79 years old, while for men it is 76 years old.

“If you spend all your savings at the age of 55 to 60, you could be penniless for the rest of your life.

“The country is heading towards an ageing community. Once the proportion of elderly people without money increases, it will become a serious social problem.

“Although forced (monthly) withdrawals are not humane, is there any better way to solve this problem?”

Wong said there will be objections from many if they lack satisfactory access to their own savings.

“It will seem unfair to people if their savings are controlled by EPF.

“However, in the end, I will still agree with EPF’s measures because I think people who are able to manage their money will not mind the proposal.” – July 13, 2023.