MIER: Statement on Further EPF Withdrawals

MIER: Statement on Further EPF Withdrawals

The Malaysian Institute of Economic Research (MIER) does not support the proposal for Employees Provident Fund (EPF) members to further withdraw from their retirement accounts. MIER strongly feels that sound economic reasoning should guide EPF withdrawals, not populist policies.

Malaysians have undergone an unprecedented period of hardship in the past two years. The government-initiated withdrawal schemes – i-Lestari, i-Sinar, and i-Citra that amounted to RM101 billion, while managed to provide some financial relief, have resulted in severe depletion of retirement funds for most of the EPF members.

The mass withdrawals have resulted in 6.1 million members now having less than RM10,000 in their EPF accounts, with 3.6 million members having less than RM1,000 in their retirement fund. This level is undoubtedly a far cry from the threshold of RM240,000 essential savings by the age of 55 for members to enjoy a dignified retirement.

The EPF is not designed to deal with calamities and pandemics. Rather, it is intended to ensure that its contributors enjoy a decent life after retirement. This is compounded by the fact that Malaysia is fast becoming an ageing society. Malaysia is just nine years short of becoming an aged nation in 2030, and further EPF withdrawals will put additional pressure on the future cost of healthcare, income security and a post-retirement income stream.

The previous three EPF withdrawal schemes were short-term measures, which should have been avoided in the first place, and must never be repeated. Instead, to address the short-term fiscal constraint Malaysians face, there is a strong economic justification for the government in providing sufficient unconditional cash assistance to the households and firms.

Long-term measures are imperative to ensure that the members have adequate savings for retirement. One such proposal is to adjust the employer’s EPF contribution rate without increasing the employers’ labour cost burden. The Government can marginally increase employers’ contribution rate for workers above a specific threshold limit and simultaneously decrease the rate for those below the threshold level. For example, employers with a monthly income of RM 20,000 or more can be lowered by 1 per cent, and the contribution rate of employers with a monthly income of less than RM5,000 can be increased by 1 per cent. This measure will not increase the burden on employers and yet will serve to address the question of equitability.

The Government must also consider broader social protection and social safety net strategies. There should be contingency plans and schemes that can kick-in in the face of calamities and other crises. The recent past has taught us that we, as a nation, cannot be complacent since emergencies and other unexpected disasters can occur. The burden of these events is usually worst felt by those who are least prepared to face them, and they need the Government’s support to rebuild their lives. A disaster relief fund should also be considered. At the same time, the coverage and adequacy of social protection, particularly towards the self-employed and those in the informal sector, must be strengthened.

The post-retirement well-being of the EPF members is at stake if the Government yield to the demand for further withdrawal of EPF funds. Instead, the Government has to consider other policy measures that ensure that EPF members are secure in their hopes for a better future.

The Malaysian Institute of Economic Research.

5 January 2022.