The Employees Provident Fund (EPF) in Malaysia has announced a restructuring of its members' accounts, effective May 11, 2024, in response to the financial challenges faced by citizens during the Movement Control Order (PKP) period. The initiative will introduce a new "Akaun Fleksibel" (Flexible Account), allowing members to withdraw savings at any time with a minimum withdrawal of RM50.
Under the Account Restructuring Initiative, EPF members' accounts will be divided into three new accounts: "Akaun Persaraan" (Retirement Account), "Akaun Sejahtera" (Wellbeing Account), and "Akaun Fleksibel" (Flexible Account). Members will have a one-time option to transfer part of their savings balance into the Flexible Account between May 11 and August 31, 2024.
The EPF estimates that if every member opts for a one-off transfer from Account 2 into the new Flexible Account, the total amount will stand at RM57 billion. Based on patterns from previous pandemic-related withdrawal schemes, the EPF expects RM25 billion to flow out from the Flexible Account in the first year, before moderating to RM4.0 billion-RM5.0 billion per annum thereafter.
Why this matters: The introduction of the Flexible Account raises concerns that it may encourage more withdrawals, potentially worsening the already insufficient retirement savings of EPF members, especially those in the lower wage group. The long-term financial security of Malaysians in their old age could be at risk if withdrawals are not managed responsibly.
While the EPF expects no impact on its portfolio, holding liquid assets to facilitate withdrawals may have a trade-off against returns. The outflow from the Flexible Account is also likely to affect the demand for Malaysia Government Securities (MGS) and Government Investment Issue (GII) in the near term. However, this impact will be mitigated by strong net contributions, ample onshore liquidity, and repatriation by government-linked companies and government-linked investment companies.
The EPF has emphasized that the Account Restructuring Initiative is designed to provide flexibility for members' short-term financial needs while ensuring the security of their retirement savings. "The introduction of the Flexible Account has raised concerns that it may encourage more withdrawals, which could worsen the already insufficient retirement savings of EPF members, especially those in the lower wage group," the EPF stated, acknowledging the potential risks associated with the new account structure.
Key Takeaways
- EPF to restructure accounts, introducing "Akaun Fleksibel" for withdrawals.
- Members can transfer savings to Flexible Account from May-Aug 2024.
- EPF estimates RM57 billion in Flexible Account if all opt for transfer.
- EPF expects RM25 billion withdrawal in first year, then RM4-5 billion annually.
- Concerns that Flexible Account may worsen insufficient retirement savings, especially for lower-wage group.