EPF: Liquidity Crunch?

The Employees Provident Fund 5EPF6 has refuted speculations of a cash crunch crisis building up in the retirement funds. In a statement reported by Malaysiakini on 12 April 2023, the retirement savings fund said it has always maintained sufficient liquidity to meet all of its obligations. The sale and purchase of overseas assets are a normal part of the EPF’s investment operations as one of its asset allocation strategies, stressing that the move was not for the payment of premature withdrawals.

The EPF issued the statement to refute the speculations circulating via WhatsApp which referred to an article titled “Bank Negara says Malaysians could run out of savings 19 years too soon" published by an international daily on April 7.

Source: www.kwsp.gov.my

According to BNM, the median savings for the 51-55 age group would have only lasted five years upon withdrawal at 55, and that has dropped to around three years after the pandemic-related withdrawals. It further states that an average Malaysian would be at risk of depleting their retirement savings 19 years before death, with global life expectancy rising to above 77 years old by 2050.

Millennials in the 26-40 age group are likely to face significant financial challenges, as many of them are struggling to meet the EPF’s Basic Savings threshold of RM240,000.

As of March 2023, 70.5 percent out of the 7.2 million active formal sector members aged 18-55 years do not meet the EPF’s Basic Savings threshold by age, while 3.1 million or 39

percent of members who made special withdrawals and are below age 55 years as of January 2023 have not started rebuilding their savings. As such, their savings levels remain critically low with a median savings of RM890.

In addition, a total of 59,230 contributors have applied for EPF’s Account 2 Support Facility (FSA2) as of 12 April, with only 27,705 found to be eligible. This only applies to those above 40 years old.

FSA2 aims to help EPF members obtain personal financing from banking institutions. So far, two banks are participating in FSA2, namely MBSB and Bank Simpanan Nasional (BSN). It involves a maximum financing of RM50,000 (subject to EPF Account 2 balance) and a repayment period of up to 10 years. An applicant is required to have a minimum amount of RM3,000 in EPF Account 2.

EPF withdrawals are only allowed for housing, education, health, certain protection plans such as for chronic illnesses and a maximum of RM3,000 to cover haj cost.

We need a strong retirement fund, not one that is “raided” every time we have a crisis. The Government has to play a better role in funding those in dire straits. Knee-jerk reactions are not helpful. We could have a windfall tax on banks and energy companies or use the unclaimed money (RM11b) as a means to fund a special scheme for those eligible EPF members who need financial support. The advisory team of the PM could certainly help with this issue.

References:

EPF refutes allegations of cash crunch crisis, act amendment, Malaysiakini, 12 April 2023

Nearly 60,000 apply for EPF facility to support bank loans, FMT, 12 April 2023