EPF Withdrawal: Is This the Right Course of Action?

The recent unveiling of the 2021 budget amidst the Covid-19 pandemic saw the introduction of a controversial policy aimed at assisting financial hardships faced by affected Malaysians. It was announced that EPF contributors with savings below RM100,000 could withdraw up to RM10,000 from Account 1 savings, while those with savings above RM100,000 are allowed to withdraw up to 10 per cent of their Account 1 savings, capped at RM 60,000. To date, EPF has 14.6 million active contributors and 530,000 employers with a total managed fund of RM940 billion. Despite these impressive figures, as many as 54 per cent of contributors above the age of 54 have savings of less than RM50,000 for retirement. This is substantially less than the minimum of RM228,000 target set by EPF in 2017.

The decision to allow access to personal funds meant for retirement has come under fire from many quarters. Many are concerned that allowing such withdrawals during understandably difficult circumstances will further deplete already low retirement savings. This is essentially trading long term security for short term gains. At a macro level, there is also concern that a wave of withdrawals will impact EPF’s financial resource which could affect dividend payouts and missed investment opportunities needed to grow contributors’ savings. Prior to this, government aid has been dispensed at federal and state levels through various channels such as wage subsidies, loan moratoriums and more direct forms of financial aid such as Bantuan Prihatin Nasional (BPN) and Bantuan Khas Sarawakku Sayang (BKSS). The extent of the effectiveness of these policies is yet to be known.

The EPF has moved to quell concerns on outflow due to withdrawals by claiming that they have been preparing for withdrawals since the outbreak earlier this year and had prepared for it by increasing cash levels. In the case of portfolio rebalancing, EPF stated it would look into its liquid assets to cater for withdrawal. While this is superficially reassuring, this brings into question the long term financial viability of the country’s largest pension fund. Given the fact that there has been other policy prescriptions and direct financial aid to address the financial impact of the pandemic, is this EPF withdrawal initiative the best course of action? How will this directly impact the post retirement finances of those who decided to dip into their enforced savings? These are hard questions not only because these are hard times, but they are exceedingly necessary to ensure that the right policies are used to confront the challenges brought on by this pandemic.

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