EPF reviewing intergenerational fund transfer

As at Jan 1, 2023, 35% of EPF who turned 54 years had less than RM10,000 in savings. Numbering less than 100,000 members, they had a combined life savings totalling RM246.1m (pic: MUHD AMIN NAHARUL/TMR)

THE high-net-worth (HNW) individuals and the ultra-high-net-worth (UHNW) may have caught something mentioned in passing in the proposed federal government budget for 2025.

“Towards becoming an ageing nation, the Employees Provident Fund (EPF) is reviewing its scheme to strengthen the intergenerational transfer approach, allowing part of a member’s EPF savings to be transferred directly into the EPF account of immediate family members,” Prime Minister Datuk Seri Anwar Ibrahim, who is also the finance minister, said in the budget speech at Parliament on Oct 18.

This came under the larger social protection umbrella of the speech. The overarching idea here is strengthening the social protection agenda “to ensure that the majority of the rakyat is equipped with reasonable retirement savings and insurance contributions against disasters.”

The suggestion must have caught the attention of the HNW and UHNW folks in this country. The idea, if accepted, will allow them to transfer some of their monies in their EPF accounts to their children.

The immediate benefit is to allow parents to transfer some of their cumulated pile in the retirement fund to their children. They have worked hard to build up the nest, and presumably have enough for their own retirement. This is their gift to their children.

Once tucked into the accounts of their children, the children will not be able to tap the monies unless they hit a certain age limit. It ensures that they will have a healthy balance when they hit their own retirement. As for the nation, you will have capital that can be put to work for a longer period of time. The nation can benefit from investing that portion of the capital that is now locked for a fixed period with them.

It is understood that EPF is mulling to institute a tax-free transfer of a portion of the funds from the parents to the children. The tax benefits would entice some members to consider the scheme. This measure would ensure that the taxpayers with money lying in the EPF would consider the benefits of the programme.

Of course, the plan would come with some caveats like transfer limits and some clear dos and don’ts. That is only to be expected.

But it will not be clear if such a scheme, if implemented, would have robust take up rate like the loosening to withdraw EPF monies during Covid-19, i-Citra (RM21.4 billion by 5.2 million members).

Back then, some 8.1 million members withdrew RM145 billion from the EPF coffers between 2019 and 2023. The withdrawal took place under the i-Lestari programme (RM20.8 billion by 5.3 million members), i-Sinar (RM58.7 billion by 6.6 million), i-Citra and the special withdrawal programme (RM44.6 billion by 6.6 million).

Unlike those money leaving the accounts, this latest proposal under consideration — allowing to transfer EPF savings to children — is moving the other way around.

Will there be many takers for this?

As at Jan 1, 2023, 35% of EPF who turned 54 years had less than RM10,000 in savings. Numbering less than 100,000 members, they had a combined life savings totalling RM246.1 million. At the same time, those with savings totalling more than RM1 million made up only 2% or 4,877 members, with a combined nest egg totalling RM7.9 billion.

The ones who could make use of the EPF opening, if it happens, will be the Baby Boomers and Gen X who had mainly focused on accumulating and expanding the wealth during their lifetime.

They may use the tool to pass on their EPF savings to their children. For them, this would be one of the proposals under Budget 2025 that they would welcome.