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Experts Reveal Mixed Opinions on EPF’s Newly-Introduced Flexible Account

Earlier in April, the Employees Provident Fund (EPF) made an announcement that ended up being very much talked about, especially among working adults: the introduction of Account 3, also known as the Flexible Account (Akaun Fleksibel).

This new account is the result of restructuring of the original accounts of EPF members under the age of 55, in addition to their Account 1 or Retirement Account (Akaun Persaraan) and their Account 2 or Prosperity Account (Akaun Sejahtera).

With the Flexible Account, EPF members will be given the flexibility of better managing their short-term financial needs, where savings in the new account can be withdrawn at any time, unlike the other 2 accounts.

According to EPF Chief Executive Officer, Ahmad Zuqarnain Onn, the account holders have the option to make use of the Flexible Account or not. If they do, they will be provided with a one-time option to transfer part of their savings from Account 2 to Account 3 between 11 May and 31 August 2024, as the Flexible Account will have zero balance at the start.

Moving forward, any future contributions made by the EPF members will be divided into the 3 separate accounts – 75% into Account 1, 15% into Account 2 and 10% into Account 3 – whereas previously, the contributions were only divided between the 2 accounts (70% to Account 1 and 30% to Account 2).

“We encourage people not to (opt-in) because it is important to save for old age, but we understand that flexibility is desired and from time to time, you would need access to your savings to pay for unexpected expenses,” Zulqarnain said.

EPF Chief Executive Officer, Ahmad Zuqarnain Onn

He also mentioned that the initiative is not just due to EPF’s response to current needs, but it is also a proactive step to help members facing the challenging job landscape and demographics of the population.

According to him, if each one of the 16.07 million EPF members were to opt into Account 3, the total funds being moved into Flexible Accounts would amount to RM57 billion, with about RM25 billion of the amount expected to be withdrawn within the first year.

Meanwhile, the total withdrawals made during the Covid-19 pandemic amounted to RM145 billion.

“The current scenario is much different from during the pandemic and our portfolio is now much bigger. Hence, the impact of withdrawals through the new account is expected to be muted,” Zulqarnain said.

He also mentioned that dividends will remain the same across all 3 accounts, but this could change in the future as liquid assets do not attract higher interest rates or dividends.

Account 3: Good Call or No?

Even before the Flexible Account went live on 11 May 2024, some economists and experts have been voicing out their mixed opinions on the matter – with some saying that it is a good idea while others are disagreeing.

Hijrah Wealth Management Sdn Bhd Founder and Principal Consultant Rohani Mohd Shahir said that while a reformation to meet the request of some contributors may not be suitable for everyone, the option to opt in was a welcomed one.

She said that Account 3 could be beneficial for contributors to withdraw funds for emergencies without resorting to other avenues such as loan sharks. However, contributors must have the discipline to not misuse this facility for other purposes other than emergencies as doing so would be detrimental to their future retirement needs.

Some experts even warned that the risks of misusing the Flexible Account far outweigh the benefits. Institute of Islamic Understanding Malaysia (IKIM) Senior Fellow and Director, Muhammad Hisyam Mohamad said that instead of resorting to impulsive withdrawals, contributors should consider it as a contingency.

“What’s worrying is that the withdrawals are made for the sake of non-urgent matters such as buying goods, decorating the house, buying car accessories or keeping up with fashion trends.

“In other words, if a contributor makes frequent withdrawals through Account 3, 10% of their savings will be depleted before retirement,” he noted, adding that contributors should not lose sight of the consequences.

He stated that Malaysia will experience an ageing population by 2030 where the percentage of people aged 60 years and over will reach 15.3% of the total population and at the same time, costs of living will also escalate by then.

IKIM Senior Fellow and Director, Muhammad Hisyam Mohamad

Hisyam reminded that during the pandemic, contributors who were desperate to make ends meet fully utilised the government’s decision to allow for 4 types of withdrawals to be made from their EPF savings via i-Lestari, i-Sinar, i-Citra and Special Withdrawal.

As a result, a number of active contributors who met the basic savings benchmark of RM240,000 by the age of 55, was also reduced. According to the Ministry of Finance, a total of 6.3 million EPF members (48%) under 55 years old has savings of less than RM10,000 in their accounts as of 30 September 2023.

This indirectly signals that if the issue is not addressed, most contributors would be in dire financial straits during retirement and the savings will not be sufficient to meet their needs for 10 to 20 years after their retirement.

In regard to whether this initiative could help in addressing the cost of living issue among the people, Hisyam said that it would depend on the members’ monthly contribution. With a larger contribution in Account 2, members might be able to cope with the cost of living, given the higher disposable income for spending.

“In Malaysia, employees contribute up to 11% of their monthly salary to EPF while employers need to contribute up to 13% of the employees’ salary.

“However, for a low-wage employee who receives a minimum salary of RM1,500, for example, the combined monthly contribution may be around RM345, with only RM34.50 going into Account 3.

“If wages received by workers remain low and do not rise in tandem with costs of living, the pressure will be on affected individuals who will not be able to improve their quality of life,” he explained.

Many Still Wary of Flexible Account

According to a news report, a number of EPF members are cautious about utilising Account 3.

Concierge Nurul Fatin Muhammad Bukhri said, “Having the flexibility to withdraw money anytime from Account 3 is not a good idea.

Nurul believes that contributors might take the opportunity to use the funds to resolve their financial problems, which might lead to abuse of the funds.

This view is shared by building manager S Kannan, who said that the initiative would defeat EPF’s objective of safeguarding the contributors’ retirement funds.

“EPF should look at ways to further strengthen the dividend payouts for Accounts 1 and 2 instead,” he commented.

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