EPF Account 3: It all comes down to personal discipline

SHAH ALAM – The Employees Provident Fund (EPF)’s move to introduce a new account – Account 3 – comprising 10 per cent of future monthly contributions starting May 2024 receive various reactions from the public.

The adjustment moved away from the current 70:30 ratio between Account 1 and Account 2. Instead, it is likely that 75 per cent of the monthly contribution will soon flow into Account 1, 15 per cent into Account 2, and 10 per cent into Account 3.

EPF said that the new account aims to assist members in establishing an emergency fund for their future, particularly in response to the significant withdrawals made during the Covid-19 pandemic.

When Sinar Daily spoke to the public, some expressed concerns about its potential impact on their retirement saving as the effectiveness of Account 3 largely hinges on people's financial discipline and planning.

They said promoting financial literacy and cultivating responsible spending habits could effectively mitigate any potential misuse of the fund.

35-year-old marketing executive Alif Ilyas voiced his support of the initiative, considering it a positive step forward.

He said EPF accounts 1 and 2 were traditionally reserved for long-term use, hence making the introduction of a third account designated for current needs or emergencies a good idea.

He stressed that given the ongoing rise in the cost of living and the depreciation of the Malaysian Ringgit, a huge part of the population might require such readily accessible reserved funds to cope with financial challenges.

“If the public doesn't treat this third account as an emergency fund and instead opts to cash it out at their discretion, it ultimately comes down to personal financial discipline, no other person can influence that.

“Regardless of external factors, individuals must manage their finances responsibly,” he said when contacted by Sinar Daily recently.

When considering whether this initiative benefits future retirees, he believed it hinges on individual circumstances.

Alif said whether someone was in their 50s or just starting their career in their 20s, the effectiveness of this initiative depends largely on their financial discipline and planning.

As for the adequacy of the 10 per cent contribution, he added it strikes a reasonable balance.

Contributing more might compromise accounts 1 and 2, which were vital for retirement planning in later years.

Meanwhile, accountant Aina Rahim Mustaqim, 30, believed that any measures aimed at enhancing individuals' financial well-being in our country deserve widespread support from the public.

She said introducing EPF Account 3 as a dedicated fund for emergencies or unexpected expenses was a good move in this direction.

She stressed considering the current minimum wage of RM2,500, allocating 10 per cent of monthly contributions to account 3 appears to be a reasonable threshold.

However, Aina said the sufficiency of the contribution rate might vary based on individual financial circumstances.

“Some contributors may find it sufficient, while others may need to assess their financial goals and consider contributing more if feasible.

“Well, if there's a risk that the public may not utilise Account 3 as intended for emergencies and instead withdraw funds impulsively, it highlights the importance of financial literacy and responsible money management among them,” she said when contacted recently.

The ability for contributors to withdraw funds from account 3, especially upon retirement, presents both opportunities and challenges.

From her perspective, while it may offer flexibility in addressing immediate financial needs, it's crucial to consider the long-term implications, including the impact on retirement savings and the potential reduction in dividends accumulated over the years.

She said that increasing awareness about the purpose of EPF and promoting sound saving habits may help address this challenge.

Aina added that by educating the public on the importance of saving for emergencies and retirement, individuals can mitigate the risk of misuse and ensure that EPF account 3 serves its intended purpose effectively.

Account 3, also referred to as the Flexible Account, was designed to assist EPF members in managing cash flow issues in the future, particularly during emergencies.

This new account is expected to be automatically activated for all new contributors, while existing members can choose to choose in to create the new account if they desire.

It is worth noting that funds in Account 3 are anticipated to yield a lower dividend rate compared to Account 1 and 2, given its flexible nature allowing members to withdraw funds as needed.

Funds in Account 1 are inaccessible until retirement, while those in Account 2 can only be accessed for specific purposes such as education, health, and housing.