The need for Employees Provident Fund (EPF) contributors to withdraw savings meant for their retirement in order to survive the pandemic is a grim reflection of the state of the economy and the government’s policies, said economist Yeah Kim Leng.
While it is clear that the impact of Covid-19 has been devastating, the need to tap into retirement funds is the result of low wages, high living costs and inadequate savings, the Sunway University Business School Professor of Economics said.
“The widespread support for withdrawal (from EPF Account 1) by contributors is a reflection of the severity of the economic impact of the pandemic, inadequate savings, low wages or income levels, and high living costs.
“The government will need to focus on addressing these issues more vigorously and creatively in the post-pandemic era, especially in the 12th Malaysia Plan,” Yeah said.
Malaysia’s wage growth has been sluggish, especially for younger and lower-income workers, while living costs remain high.
Yeah said funds in Account 1 are meant for retirement and contributors should only tap into it for emergency purposes rather than to support consumption.
Withdrawal through the new i-Sinar scheme should be a last resort to avoid falling into deeper and more lasting financial woes.
“They should instead make use of the various cash assistance (schemes), reliefs and wage subsidies to tide through the current crisis, rather than face a crisis in old age, (and be) more financially secure with adequate EPF savings,” Yeah said.
The i-Sinar scheme was introduced in Budget 2021’s original version targeting EPF contributors who have lost jobs, allowing them to withdraw RM500 per month to a maximum of RM6,000 for 12 months.
Various political parties, however, demanded that the withdrawal limit be increased.
The scheme has been amended and expanded to cover eight million contributors to include those who also took salary cuts. They can access 10% of their Account 1 funds from January.
The maximum amount that can be taken or advanced in the first withdrawal has also been raised to RM10,000, with the balance of the remaining 10% staggered over six months.
Budget 2021 also proposed a reduction of workers’ statutory contribution to the EPF to 9% from 11%, in order to leave contributors with a higher disposable income.
“Again, if they have sufficient current income to cover living expenses, they should still save for emergencies and for their retirement years, given that life expectancy is projected to increase further,” Yeah said.
President of the Malaysian Trade Congress Union (MTUC) Abdul Halim Mansor said contributors should not dip into their Account 1 savings, as a retiree will need 80% of their income to live on each month after retirement.
He said the EPF should also calculate contributions based on gross income instead of basic salary.
Halim added that non-citizens should also be made to contribute to the fund.
Maintain contributions
Meanwhile, some members of the public The Malaysian Insight spoke to said they would prefer for their contributions to be maintained at 11% instead of reduced to 9%.
A digital marketing executive, who only wanted to be known as Maria, said she would have preferred to maintain her contribution at 11% despite experiencing pay cuts and unpaid leave during the movement-control order.
“I’m just thinking ahead. In the long run my retirement savings will be affected. I know (for) some people, EPF funds are their last resort.
“I’m also skeptical about the i-Sinar programme. The fact that Malaysians do not have enough savings at retirement… could cause further damage. I understand the purpose of the scheme, but I’m not comfortable touching my retirement savings,” the 29-year-old said.
Nur Linda, 35, who works in the private sector, hopes that her employers will maintain the contribution at 11%.
However, Nur Linda said she intends to access her Account 1 funds through the i-Sinar scheme as she is finding it hard to survive with constant salary delays.
“And the i-Lestari scheme will be over in a few months. At least this will be a backup,” she said, referring to the earlier withdrawal scheme introduced in April for EPF contributors to access funds in Account 2, which is meant for health and education or loan settlements.
“Of course, I will not withdraw RM10,000, but a smaller amount for emergency purposes,” the 35-year-old said of the i-Sinar scheme.
Alex Chin, who works in retail, wants the 11% contribution maintained as he wants to save for his old age.
“I am unable to put aside money for savings from my take-home pay,” he said. – TMI