Will EPF Account 3 help people in times of need?

SHAH ALAM - The implementation of Account 3, or the Akaun Fleksibel of the Employees Provident Fund (EPF), provides an advantage and flexibility to contributors who face financial difficulties to withdraw savings when in need.

Economist Dr Muhammed Abdul Khalid said it was an optimal solution to meet the needs of members who required short-term cash flow.

"One demand addressed by EPF through the introduction of Account 3 is to quickly rebuild retirement savings by increasing contributions by five percent to 75 percent into Account 1," he told Sinar Harian.

The Universiti Kebangsaan Malaysia Institute of Malaysian and International Studies (IKMAS) research fellow said the initiative would not affect retirement savings if EPF members did not withdraw savings and received higher salaries throughout their working period.

He said active contributors would retire and were expected to have a basic savings level increase to 65 per cent in 2035, compared to 33.1 per cent previously (2023).

"However, if many make withdrawals but still have low salaries, they will retire in poverty.

"Now, nearly half of the 13 million EPF members have total savings of less than RM13,000 and it is not surprising that the group with the lowest savings is the Bumiputera," he said.

Muhammed said EPF's action in introducing Account 3 was one of the solutions to address the life crisis faced by people due to the pressure of the high cost of living.

He said that although withdrawing retirement savings was not the best policy at the moment, it was the only alternative when other aids were insufficient.

"Furthermore, there have been four EPF withdrawals since 2020, which should not have been allowed.

"However, this pressure from the people is understandable, rational, and expected. Where else can they seek solutions to face life crises if not by withdrawing EPF savings?" he said.

He commented that the five per cent increase in Account 1 to a total of 75 per cent was a positive step, but it was not enough, especially to address the effects of an ageing population.

He said only half of private sector workers had EPF accounts and this should not happen for several reasons.

"Half of the workers in Malaysia have no social protection for retirement. At present, only formal sector workers are required to register and save with EPF.

"Workers in the informal sector, such as small traders, are not required to register and save with EPF. This needs to be changed, all workers must be required to save with EPF for their future.

"Salaries in Malaysia are too low. Low salaries, low savings. Although all workers are protected under EPF, if incomes are low, many workers will retire into poverty. Salaries must be increased, if not, more elderly people will live in poverty," said Muhammed.

He said Account 3 facilities need to be flexible, meaning contributors could withdraw savings at any time and dividends should be the same as savings in Accounts 1 and 2.

"What is more appropriate, fair, and effective is for the government to take proactive steps to increase the coverage and adequacy of cash assistance programmes.

"This responsibility lies within the government's jurisdiction and not solely with EPF," he concluded.