How Will EPF Account Restructuring Address Members’ Needs?

The Employees Provident Fund (EPF) has unveiled a significant restructuring of its members’ accounts aimed at bolstering their income security post-retirement while catering to their life cycle needs.

Effective May 11, 2024, the restructuring will transition from the existing two-account system to three distinct accounts: Akaun Persaraan, Akaun Sejahtera, and Akaun Fleksibel. EPF members under the age of 55 will witness their accounts transformed into the new structure. Balances from the existing Account 1 and Account 2 will be transferred to Akaun Persaraan and Akaun Sejahtera, respectively. Akaun Fleksibel will be initialised with a zero balance.

All subsequent contributions after May 11, 2024, will be allocated as follows: 75% into Akaun Persaraan, 15% into Akaun Sejahtera, and 10% into Akaun Fleksibel. Between May 11, 2024, and Aug 31, 2024, members will be provided with a one-time option to transfer a portion of their savings from Akaun Sejahtera to Akaun Fleksibel as an initial amount. The transfer will be based on a predetermined formula, allowing members flexibility in managing their financial resources.

Akaun Fleksibel will commence with fresh contributions credited to members’ accounts after the implementation date. Those opting for the initial transfer will have the amount determined based on the balance in their Akaun Sejahtera at the time of application.

Members will enjoy flexibility in withdrawing funds from Akaun Fleksibel, subject to a minimum withdrawal amount of RM50. Withdrawal applications can be conveniently made online through KWSP i-Akaun or at any EPF branch nationwide. Upon reaching the age of 55, members’ savings across Akaun Persaraan, Akaun Sejahtera and Akaun Fleksibel will be consolidated into Akaun 55. Subsequent contributions will be channeled into Akaun Emas.

For those who do not touch their EPF savings, nothing changes and his/her AP balance will be growing at a faster rate.

Second, for those who withdraw from AF and leave zero or no balances, overall, they will lose out when it comes to retirement as their effective savings, based on employer and employee contribution of 23% or 24% will be reduced to 20.7% and 21.6%, respectively, per month, and this will reduce the compounding effect of their EPF savings and a lot less at retirement age.

It is unlikely that most of the EPF members will have sufficient savings at the point of retirement to enable them to live over the next 20 years after the age of 55 based on Malaysia’s current life expectancy. Over the last decade, the EPF has adjusted the benchmark for basic savings, targeted at 55-year-old individuals, on three occasions. Initially set at RM196,800 in 2014, it was raised to RM228,000 in 2017, and then increased to RM250,000 in 2019.

The creation of AF may be a boon to some members but also a bane to others who do not wish to be tempted to use their retirement savings like an Automated Teller Machine (ATM). Tapping into AF will result in lower retirement savings and perhaps cause a retirement crisis too due to insufficient income post-retirement.

Over the years, especially during the pandemic, the EPF has been a source of funds to many to the extent we do not have enough retirement savings. Based on statistics as at the end of 2023 and as provided by the EPF, the current median savings of all members and members in the 50-54 age group of RM10,898 and RM38,731 respectively. For some, the EPF is not the only retirement savings that they have, they may have other assets or investments that could tie them over as well as the age of 55 is no longer a retirement age. Some will continue to work for a good five years at least or even more if under contract, which can help them build up their savings. 

But the key point missing in all of this is that EPF is a retirement fund. Period. Not a convenient financial house. Do we want another bank or a retirement scheme? The original purpose of EPF was to meet expenses in our retirement years. As we amend this, akaun fleksibel which is 10% now, may increase to 80% later when a crisis like Covid hits us?

References:

How will EPF account restructuring address members’ life style needs? Eynez Syazmeena, Focus Malaysia, 25 April 2024

EPF’s third account, both a boon and a bane, Pankaj C. Kumar, The Star, 27 April 2024

Malaysia’s retirement savings crisis exposes deeper problems, Por Heong Hong, Aliran, 

23 April 2024