Latest EPF withdrawal, at what cost?

The abuse will also affect the country’s overall capital markets including govt’s cost of borrowing

by AZREEN HANI / pic by MUHD AMIN NAHARUL

THE continued use of the Employees Provident Fund (EPF) for special withdrawal will affect the overall capital markets of the country including the cost of borrowing for the government.

At the same time, more Malaysians will fall into hardcore poverty as 6.7 million EPF members have less than RM10,000 in their account, an increase from 4.7 million after several rounds of withdrawals since 2020.

“This continued use of EPF as a piggy bank in hard times takes it away from the very purpose of its existence. On top of that, it is killing EPF as an institution, an institution that has done well,” said renowned economist Dr Nungsari Radhi.

“Beyond that, given the size of the fund, this abuse of EPF will also affect the overall capital markets of the country including the cost of borrowing for the government,” he told The Malaysian Reserve (TMR) yesterday.

Nungsari noted that Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz had said that the EPF will have to liquidate its foreign assets and the RM100 billion withdrawals last year had also contributed to increased cost of borrowings for the government.

“Yet, the government wants to do it. A decade or two from now, a whole generation of Malaysians will exit the labour market with nothing for their twilight years. Horribly disappointing,” he said.

Applications for the special RM10,000 withdrawal facility from EPF will be open to members below 55 starting April 1.

“The deadline for application is April 30, while payment starts on April 20,” EPF said in a brief statement yesterday.

Members are allowed to withdraw a maximum amount of RM10,000 and a minimum of RM50 and must fully utilise their savings balance in Account 2 before accessing Account 1. Further details will be updated soon, said EPF.

In his speech at the Dewan Rakyat early this week, Tengku Zafrul said that EPF will have to dispose of more overseas investments, as well as halt domestic investments in the short to medium term if another RM10,000 withdrawal is allowed.

A withdrawal of up to RM10,000 for 6.3 million eligible members will add up to a total of RM63 billion, and will require EPF to rebalance its portfolio to accommodate the withdrawal, which would likely drive the total impact beyond RM63 billion, he said.

“To provide the total RM63 billion, EPF will have to sell more of its overseas investment assets amid the uncertain market conditions, especially with the recent Russia-Ukraine crisis, and stop its domestic investments in the short to medium term (three to six months),” he explained.

Yesterday, Prime Minister Datuk Seri Ismail Sabri Yaakob announced the RM10,000 special withdrawal from the EPF to alleviate people’s burdens.

“This is a difficult decision as it involves the savings for the people when they are old and this special withdrawal is a middle path in balancing between the desperate needs of today and the savings for the future.

“Although the government allows for this special EPF withdrawal, I plead with all contributors to maintain their savings unless the situation is truly desperate,” he said in a special televised press conference.

Subsequently, both Tengku Zafrul and the EPF have said that the details of the latest initiative will be announced later.

The fund also said that the initiative should be the last, noting that it will be the fourth withdrawal after i-Lestari and i-Sinar in 2020 and i-Citra in July 2021.

As of end 2021, a total of RM101 billion had been withdrawn under the first three facilities, it said.

Meanwhile, DM Analytics senior researcher and economist Zouhair Rosli said that this decision will impact the Bumiputera community the most.

“Three in five (62%) Bumiputera EPF members’ will have less than RM10,000 in their savings account, an increase from 55%. The incidence remains high among Indians at 46%, and only 27% among Chinese,” he told TMR.

According to him, based on the latest data, more EPF members have less than RM10,000 in their account, an increase from 4.7 million to 6.7 million individuals.

Among those with less than RM10,000, three in five have almost nothing in their savings accounts.

The number of individuals with almost RM0 savings tripled from 1.4 million before the pandemic to 4.1 million individuals.

“As a result, most of the bottom 40% and middle 40% income groups (B40s and M40s) will not have enough money to even buy food during retirement, let alone buying clothes and paying for housing on a monthly basis. How much can they afford to spend once they are retired? B40 can only afford RM4 per month and M40 will only be able to spend RM100 per month during their retirement,” he said.

Zouhair also said more than half of the total workers or about eight million workers in the country will not benefit from this decision.

“How many workers are not covered for retirement income security and therefore will not benefit from this EPF withdrawals?”

He said the best that the government can do for the rakyat now is to help the people via an increase in government spending and targeted assistance.

“What we are seeing now is that they are happy to not spend more for the rakyat and gladly sending more Malaysia Family to live in hardcore poverty,” he added.