New EPF scheme a win-win solution, says economist

 

Monthly EPF contributions will be split three ways from May 11, with 75% going into Account 1, 15% into Account 2, and 10% into Account 3.  (Bernama pic)

PETALING JAYA: An economist has hailed EPF’s introduction of a third account as a “win-win proposition”, saying it will allow contributors flexibility in accessing their funds and improving their retirement savings.

Muhammed Abdul Khalid, a research fellow at Universiti Kebangsaan Malaysia’s Institute of Malaysia and International Studies, said the allocation of funds under the new account structure strikes a “reasonable balance”.

“This strategy represents a middle ground, and shouldn’t come as a surprise.

“Once we opened the door for members to tap into their retirement savings as we did in 2020 and 2021, the demand for further withdrawals became almost inevitable,” Muhammed told FMT.

Muhammed Abdul Khalid.

He also said Account 3 was a “less damaging solution” to the needs of members requiring access to cash.

“Had EPF not allowed the four withdrawals during the pandemic, amounting to approximately RM150 billion, the necessity for establishing Account 3 might not have arisen.

“However, what’s done is done, and dwelling on past decisions serves little purpose,” he said.

Monthly EPF contributions will be split three ways from May 11: 75% into Account 1 (Akaun Persaraan), 15% into Account 2 (Akaun Sejahtera), and 10% into Account 3 (Akaun Fleksibel).

Savings in the flexible account can be withdrawn at any time for any purpose, at a minimum amount of RM50.

Currently, 70% of EPF members’ monthly contributions are channelled into Account 1, which remains inaccessible until retirement. The remaining 30% is directed to Account 2, accessible for education, healthcare, housing, and a partial withdrawal at age 50.

Muhammed said the 5% increase in Account 1 contributions was EPF’s attempt to address the challenge of balancing the pressure from the people for immediate withdrawals with rebuilding retirement savings quickly.

However, he said, the measure falls short in addressing the broader ramifications of an ageing population, as not all workers possess EPF accounts.

He said only half of non-pensionable workers are currently enrolled in EPF, leaving a significant portion of workers without adequate social protection.

“Ensuring comprehensive retirement savings coverage is imperative, with EPF currently mandatory solely for formal sector employees.

“Extending this obligation to encompass all workers, particularly those in the informal sector, is paramount,” he said.

Muhammed also said low-income wage earners with EPF accounts are in a disadvantaged position as their savings are “way too small”.

He said the median savings in Account 2 for B40 individuals is approximately RM250, and about RM10 for the bottom 10%.

“In other words, those who are the most financially fragile either lack EPF coverage altogether or have insufficient savings.

“A more effective approach would entail the government taking proactive steps to enhance the coverage and adequacy of cash assistance programmes. Such responsibility lies within the domain of the government, rather than on EPF,” he said. - FMT