Malaysia’s Employees Provident Fund (EPF) has initiated its long-awaited flexible withdrawal scheme, dubbed Account 3. The scheme allows pre-retirement account holders to withdraw up to 10% of their balances for any purpose.

Before the restructuring of the pension fund, EPF members under the age of 55 could withdraw from their accounts only for specific purposes, such as covering for their medical, educational or housing needs.

The new scheme reflects EPF’s commitment to adapting to changing socio-economic circumstances while catering to the diverse needs of its members.

“The main focus of the EPF Account Restructuring initiative is to empower members in making decisions to balance future needs for retirement between short-, medium- and long-term financial needs,” said EPF chief executive officer Ahmad Zulqarnain Onn.

The CEO believes the scheme is a “proactive step” to assist contribtors amid the changing job landscape.

“With these enhancements,” Onn explained, “the EPF strives to ensure that every EPF member can manage their finances with confidence and resilience in this dynamic and challenging environment.”

A lifeline for Malaysians struggling financially

The decision to introduce Account 3 comes at a critical juncture, as Malaysia navigates economic challenges and strives to bolster consumer confidence.

With Malaysians gaining access to a portion of their EPF savings, there is anticipation surrounding its impact on the economy, especially amidst ongoing recovery efforts post-pandemic.

The financial flexibility offered by Account 3 is seen as a double-edged sword, providing much-needed financial relief for some while raising concerns about the sustainability of retirement funds.

In 2022, Malaysians were given leeway to withdraw up to 10,000 ringgit from their savings, implemented in response to the economic hardships wrought by the COVID pandemic. This served as a lifeline for many Malaysians grappling with financial uncertainties at the time.

However, fund managers today suggest the circumstances surrounding Account 3 differ from the unique challenges presented by the pandemic. Unlike the 2022 arrangement, Account 3 is designed to offer ongoing flexibility rather than a one-time relief measure.

Nonetheless, implementing Account 3 has ignited discussions and speculations regarding its potential ramifications, particularly on consumer spending patterns.

Malaysians’ retirement savings decreasing

Experts advise careful consideration and strategic planning to optimise the benefits without compromising EPF members’ personal finances in the future. Contributors who wish to avail of Account 3 must exercise discretion and prioritise long-term financial security.

The withdrawals could overrun the system and have adverse effects on the savings of millions of contributors, particularly those in the M40 and B40 income groups.

For example, hose who opted to withdraw from their accounts in 2022 might be left with insufficient savings upon reaching retirement age.

“Looking at the long-term implications, we are not positive on this trend as people are using retirement money to fund current consumption,” said Choo Swee Kee, Chief Investment Officer at TA Investment Management, in a report from The Edge.

“With a smaller balance in their EPF accounts, people will soon find it more difficult to buy homes in the future.”

As discussions continue, stakeholders grapple with balancing immediate financial relief with the need for sustainable retirement planning.