EPF: Retirement Scheme or Emergency Fund?

EPF has been too flexible for withdrawal of its funds by members. Account 1 has been rarely available for purposes of meeting immediate needs. It has been allowed up to 30% of total amount in excess of basic savings for Members Investment Scheme. Account 2 is to be used for purchase of life insurance and Takaful products for critical illnesses under Budget 2021.

Is EPF a retirement scheme or an emergency fund? Political masters seem to have no moral compass to suggest use of both Accounts 1 and 2. Based on 2018 Annual Report, average savings of those aged 54 was RM107,561. Of this, 38% or about 94,260 members are active. The inactive members have only RM43,938. Minimum benchmark amount for retirement is RM240,000 (survive to age 75). Over 93% of active members have less than the minimum amount.

 

Why the insufficient savings?

·       Not everyone is employed by the time of entry into labour force;

·       Salaries are just too low (or contributions need to be increased? – from 24% to that of CPF in Singapore at 37%); and

·       Discipline of keeping funds beyond age 55 is not there (by members).

EPF must return to its original objective as a retirement scheme and not a “piggy” bank for a rainy day. It has to cover somehow the unemployed and self-employed individuals. Otherwise, the fund will be depleted with net withdrawals exceeding contributions. Many are losing faith on the retirement fund as it continues to indulge in “fancy” schemes of a Government that is morally bankrupt.

 

Reference:

EPF-the withdrawal syndrome, Pankaj C. Kumar, The Star, 21 November 2020