In weathering through the unprecedented crisis which doesn’t appear to be ending so soon, people are trying to search for all means to make ends meet. This includes the decision to use up savings under the Employees’ Provident Fund (EPF) which have been reserved for retirement. Although it is undeniable that empathy towards the unfortunate ones is crucial during this hard time, perhaps there still needs to be control or vigilance to pursue this initiative.
As known to nearly all, the idea of one-off withdrawals from EPF Account 1 started last year when it was called on by some politicians.
It was considered and announced during the tabling of Budget 2021 as i-Sinar but implemented on targeted basis only for those who lost their jobs — RM500 per month with a total up to RM6,000 over 12 months.
This had resulted in mixed reaction mainly because it was deemed not enough and more should have been done. Hence, the conditions were later revised and announced on 16 November 2020 with an expansion in coverage from the initial 600,000 beneficiaries to two million members, covering those who lost their jobs, were on unpaid leave and have no source of income.
Nonetheless, the revisions didn’t stop there as the coverage has again been expanded to eight million members announced on 2 December 2020 and recently, it was reported that EPF is currently working on the removal of conditions for the i-Sinar facility.
Findings from EMIR Research’s poll conducted in the final quarter of 2020 revealed that a large share of respondents are worried about their socioeconomic conditions due to the pandemic — losing jobs (81 per cent), inadequate incomes (79 per cent) and mental health (75 per cent).
Therefore, it is clear that something needs to be done to continuously try to manage the pessimistic sentiments of the people.
Despite the effort in trying to support the affected rakyat with these revisions, it is also important to consider certain possible consequences or Malaysian-specific challenges which could result from this flexibility.
One major challenge to be considered is the poor financial literacy among Malaysians.
Based on Bank Negara’s Financial Capability and Inclusion Demand Side Survey 2018, one-third of Malaysians stated that they have low knowledge when it comes to finances, skewed to lower income households.
One-tenth of Malaysians also believed that they are not disciplined in monitoring and managing their finances. Eighty-four per cent of Malaysians saved on regular basis only to make do in the short-term.
More than half of Malaysians expressed difficulties to raise RM1,000 as emergency funds.
When it comes to retirement savings, 41 per cent said that they will be relying on EPF savings as their main source of income but nearly 50 per cent of respondents are not confident to have sufficient or sustainable income after they retire.
The other concern is how poor the social safety net is for the informal sector workers as their financial status might not be as stable as the employees in the formal sector.
Data in 2019 showed that the employment in informal sector made up 8.3 per cent of the total employment in Malaysia (1.26 million) and since the pandemic, it can be observed that more people are going into the informal sector.
Although they are encouraged to voluntarily contribute for their retirement savings through EPF’s i-Saraan scheme, it appears that the number of people contributing is low and according to the Deputy Finance Minister II Mohd Shahar Abdullah, it is “not encouraging”.
For instance, The Star reported on 12 September 2020 that there are less than 10 per cent of 2.7 million self-employed individuals who contribute to the scheme whereas only 18 per cent who contribute consistently.
Therefore, the permission to withdraw savings without conditions for the informal sector workers would likely put their unstable savings at risk given the nature of their job and salary levels. Those who are not contributors still would not benefit from this initiative and they would be depending on other stimulus measures.
Eligible members need to be clearly informed about the status of their savings and the consequences of their withdrawals.
As mentioned in my previous article titled “Replace EPF withdrawals with long-term sustainable measures”, the role and function of EPF’s Retirement Advisory Services (RAS) and/or the Credit Counselling and Debt Management Agency (AKPK) need to be made known to the members for them to utilise the services.
From the long-term perspective, prompt actions need to be taken to improve financial literacy of Malaysians, i.e. early education to nurture youngsters about sound financial management. Perhaps, something similar to the former government’s National Strategy for Financial Literacy (2019-2023) can be pursued.
This article is not meant to deny one’s right toward his or her own hard-earned savings but there needs to be a balanced approach before allowing this measure to take place especially when the future remains uncertain.
Sofea Azahar is Research Analyst at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.