By Dr Paul Anthony Mariadas and Dr Uma Murthy
On May 11, 2024, EPF members under the age of 55 will undergo an account restructuring, dividing their holdings into three distinct accounts: Akaun Persaraan, Akaun Sejahtera, and Akaun Fleksibel. The balances from Account 1 and Account 2 will be transferred to Akaun Persaraan and Akaun Sejahtera respectively, while Akaun Fleksibel will start with a zero balance. Starting from May 11, 2024, all contributions will be distributed into the new accounts as follows: 75% into Akaun Persaraan, 15% into Akaun Sejahtera, and 10% into Akaun Fleksibel.
Between May 11, 2024, and August 31, 2024, members will have a one-time opportunity to transfer a portion of their savings from Akaun Sejahtera (previously Account 2) to Akaun Fleksibel as an initial amount. If a member chooses not to opt-in for an initial amount transfer, their existing balance will remain in Akaun Sejahtera.
Analysts suggest that if every EPF member decides to undergo a one-time transfer from Account 2 to Account 3, approximately RM57 billion could be shifted to the new flexible account. However, it’s anticipated that only around RM25 billion may be withdrawn from Account 3 during the initial year, drawing parallels from withdrawal trends observed during pandemic-related schemes. This amount contrasts with the RM44.6 billion total under the Pengeluaran Khas scheme, eventually tapering to an estimated annual range of RM4.0 billion to RM5.0 billion thereafter.
The positive reception of the new account underscores a growing recognition of the need for financial flexibility and preparedness in today’s uncertain economic landscape. The newfound emphasis on financial resilience has sparked conversations about the importance of diversifying savings strategies beyond traditional avenues. The introduction of this account represents a step towards empowering individuals to proactively address financial challenges, rather than being solely reliant on reactive measures in times of crisis. It will offset the economic effects of sluggish global growth and serve as a buffer against the rising cost of living, particularly if subsidy rationalisation leads to price hikes.
Furthermore, the recognition of the account’s value extends beyond its immediate utility during emergencies. It serves as a testament to the evolving nature of financial planning, highlighting the need for adaptable and customisable solutions that cater to diverse needs and circumstances. By providing a dedicated space for emergency savings within a structured retirement framework, the account not only enhances financial security but also promotes a proactive approach to long-term financial health.
The introduction of the new account is seen as a valuable tool for Malaysians grappling with the escalating cost of living, echoing sentiments shared by individuals like myself. While allocating 10% to Account 3 may appear modest at first glance, the long-term perspective reveals its substantial accumulative potential. This forward-looking approach acknowledges the inevitability of financial challenges and positions the account as a proactive solution for mitigating their impact.
Furthermore, there is a potential for some individuals to consider alternative investment options instead of keeping their funds within the EPF. This perspective implies that withdrawing funds and investing them elsewhere may offer the potential for higher returns than what the EPF’s dividend rate can provide. However, it’s important to note that opting for alternative investments may expose individuals to elevated levels of risk, potentially endangering their retirement savings if these investments fail to meet expectations or suffer losses.
Apart from this, withdrawing from retirement funds should be approached cautiously, as such actions should ideally be temporary rather than permanent. From a macroeconomic perspective, there is the potential for an additional RM20 billion to RM30 billion in consumer spending in 2024, which could stimulate economic growth. While such withdrawals may provide a short-term boost to consumption, it’s essential to consider the long-term implications. It has the potential to trigger or diminish EPF investments in local enterprises and erode long-term savings in pension accounts. Permanently reducing retirement savings limits the amount available for investment, which in turn can diminish the potential for economic growth.
In conclusion, finding a balance between addressing immediate financial needs and safeguarding resources for future prosperity is crucial. To adapt to evolving financial landscapes, the EPF should contemplate transitioning into a flexible deposit account, attracting funds from diverse sources beyond traditional salary contributions.
Dr Paul Anthony Mariadas and Dr Uma Murthy are Lecturers for the School of Accounting and Finance at Taylor’s Business School, Faculty of Business and Law, Taylor’s University. Taylor’s Business School is the leading private business school in Southeast Asia for Business and Management Studies based on the 2024 QS World University Rankings by Subject and has received the Association to Advance Collegiate Schools of Business (AACSB) accreditation
