Price tag: Strict conditions if gov’t allows EPF withdrawals

KUALA LUMPUR: If the government were to allow withdrawals from Account 1 of the Employees Provident Fund (EPF), strict conditions must be set to deter them from exhausting their savings.

Institute for Democracy and Economic Affairs senior economist Adli Amirullah said the public should also be educated on the implications of using up their retirement savings.

“For instance, a minimum withdrawal amount should be set, number of withdrawals should be capped and income bracket of contributors must be stated.”

As an alternative, Adli said, the government should consider providing direct fiscal injections to ease the people’s financial burdens.

He said this could be introduced in the form of cash handouts, wage subsidies and other forms of monetary aid.

“EPF money does not belong to the government. It is the employees’ hard earned money. The idea of asking people to use their own savings to survive is really bad.

“At the same time, it is the people’s right to decide if they want to use their savings or not in times of crisis. Hence, I believe choices should be given to the people.”
Sunway University Business School of Economics Professor Dr Yeah Kim Leng said the government should fix a cap of RM1,000 a month depending on the amount in Account 1 of contributors.

He said this would create a balance between withdrawing money for current needs stemming from the economic impact of the Covid-19 pandemic and ensuring sufficient savings for retirement.

“The withdrawal should be capped for essential spending, such as food and other necessities.

“The government also needs to determine if the balance available in Account 1 after a withdrawal is sufficient for contributors to lead a sustainable life during retirement.”

University of Cambridge Fellow in Finance Dr Lim Kim-Hwa said the pandemic had caused enormous pain to many households, so whether people were allowed to withdraw their EPF savings depended on the severity of the circumstance.

He said since withdrawal from EPF savings meant reducing one’s future pension, the withdrawal must be made clear.

“If a withdrawal is not allowed, it could discourage contributors from adding more when times are good since many would be unwilling to contribute if it cannot be withdrawn, even during severe conditions.

“If a withdrawal is allowed, EPF is likely to set a ceiling and disburse money in a phased manner since many of its assets are not in cash.”

A huge withdrawal, he warned, would cause a mismatch between the withdrawal and the underlying assets.

The National Council of Professors (MPN) said the government should scrutinise the proposal to allow contributors to withdraw savings from Account 1.

It said the move would alleviate the people’s financial burden, especially retrenched workers.

“During these testing times, the country needs people with high purchasing power to support the economic sector so that it can continue to grow and prevent further layoff of workers.”

MPN said although EPF savings were meant for old age, considering the current situation, having access to the money could ease many people’s burdens.

“Once everything is back to normal in the future, contributors can increase their contributions to recover the amount.”

Joining the calls to allow EPF contributors to withdraw savings from Account 1 is the National Association of Skilled Workers.

Its secretary-general, Mohammad Rizan Hassan, said this could reduce the burden faced by skilled workers in the manufacturing sector, who were among those affected by the economic impact of the Covid-19 pandemic.

“Although the government has strong and valid reasons not to allow such withdrawals, the association would like to highlight that skilled workers in the manufacturing sector are severely affected by the present situation due to the drop in overtime, which has been their supplementary source of income.

“Compounding the situation is the fact that many in the semi-skilled workforce became unemployed after the pandemic forced factories to wind up or downsize.

“There are also factories in the recovery phase following the Movement Control Order that have switched operations to full automation (machinery), which poses a risk of unemployment to the present workforce.”

He said the association acknowledged the government’s efforts to cushion the adverse economic impact of the pandemic, including the introduction of several economic stimulus packages, such as the Economic Recovery Plan (Penjana).

“The outcome of such efforts, however, will not be seen in the immediate future since such efforts are more of a social support for affected groups to venture into a new career field or even upgrade existing skills.

“Hence, allowing EPF contributors to withdraw from Account 1 could at least lessen the burden apart from motivating contributors to embark on a plan to sustain their life.”

Professor Dr Mohd Nazari Ismail, from Universiti Malaya’s Faculty of Business and Accountancy, said Bank Negara Malaysia could “create money” — called quantitative easing — and lend it to the government interest-free.

He said the government could then lend money to people in need interest-free as well.

However, he said, considering people’s financial and economic situations amid the Covid-19 pandemic and movement restrictions, the government could permit Account 1 withdrawals by those desperately in need.

“People with very low income but have large families should be able to borrow more, for instance.

“It is better than them borrowing from banks or worse, from Ah Long (loan sharks), which can end in a terrible financial mess even before they retire to enjoy their EPF savings.

“The problems facing our society due to Covid-19 is magnified because some people have been living beyond their means before this and have been borrowing money for all kinds of expenditure, such as fancy cars, personal loans to fund weddings and credit card (debt) to go on holidays.”

He said if people saved enough and were not so deep in debt, they would not suffer so badly.

“Unfortunately, banks have been encouraging people to live beyond their means. Our society needs a new culture where helping others in need is the value that is emphasised and appreciated, rather than enjoying life using borrowed money.”

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