Employees Provident Fund or Emergency Provident Fund?

The government has given the green light to Employees Provident Fund (EPF) contributors to use the savings in their Account 2 as collateral for bank loans to tide through difficult times. EPF is meant for retirement savings, and that other countries globally have stopped this kind of special withdrawals, such as Australia, Peru and Chile. About RM145.5 billion has been withdrawn since 2020.

As of April 2020, the median savings of bumiputra members was at RM15,500 but that had shrunk to RM4,900 as of December 2022. The Indian community saw about a 40% drop in median savings – from RM25,700 to RM14,900.

Source: www.kwsp.gov.my

Chinese Malaysians, on the other hand, only saw a 1% drop – from RM45,800 to RM45,200.

As for income groups, the Top 20 (T20) group, which has 2.6 million members, saw a 9% increase in median savings – from RM140,440 as of April 2020 to RM152,964 as of December 2022.

The median savings of the Middle 40 (M40) shrank by 34% from RM30,113 to RM19,926.

The median savings of the Bottom 40 (B40) dropped by 76% to RM577 – from RM2,434.

There are 5.2 million members in the M40 and B40 groups.

In addition, only 3%, or 350,000 members, had achieved the adequate savings threshold of RM600,000.

A total of RM44.6bil was taken out through a special withdrawal scheme in 2022. The total contribution for 2022 was RM87.8bil whereas total withdrawal was RM91bil.

For 2022, the EPF declared a dividend rate of 5.35% for conventional savings, with a total payout of RM45.44bil, and a 4.75% dividend rate for syariah savings, with a payout amounting to RM5.7bil. In total, the retirement fund’s payout for 2022 amounts to RM51.14bil.

But this whole idea of using savings in Account 2 as collateral for bank loans is wrong! Is EPF another Danajamin? Or is EPF a retirement fund or Emergency Provident Fund?

Using EPF savings as collateral is as good as withdrawing the sum from EPF. We cannot have a retirement fund acting as facilitator for guarantees or permitting any further withdrawals.

It has to be Bank Negara Malaysia (BNM) providing a special fund for those EPF members needing personal emergency loans. The proposed Emergency Loan Fund is administered by BNM through selected banks. Each loan sum does not exceed RM20,000, interest rate is fixed at 2% and the repayment period is 7 years. This is an easier solution to fix than the convoluted scheme by the government. Can we do that? Otherwise, the T20s will also withdraw all their funds and we have a confidence crisis! 

References:

Govt allows EPF members to use savings in Account 2 as collateral for bank loans, Chester Tay, theedgemarkets.com, 9 March 2023

RM145bil in EPF withdrawals made since 2020, Ragananthini Vethasalam, The Star, 

5 March 203