Easy withdrawals from EPF Account 3 could hurt retirement - Economist

SHAH ALAM - The Employees Provident Fund's (EPF) Account 3, touted as an emergency savings tool, raises concerns due to its easy accessibility.

While intended for urgent needs, the ability to withdraw funds anytime with a minimum of RM50 could have unintended consequences.

Many view this Flexible Account as a readily available source, akin to a bank account, for non-essential purchases like car down payments or phones.

This is particularly worrisome considering EPF data reveals 3.6 million members with savings below RM1,000 and another 6.1 million with less than RM10,000.

Balancing Flexibility with Responsibility

Future Labour Market Research Centre (EU-ERA) Chief Economist Muhamad Zharif Luqman Hashim cautioned that although the introduction of the Flexible Account can mitigate the impact of economic instability by providing financial surplus to contributors, the public needs to be cautious.

He said that using funds from this account could lead to future inflation.

"Frequent withdrawals from this account can reduce the overall savings amount, affecting contributors' post-retirement income.

"This is because the amount withdrawn no longer earns dividends or profits from savings.

"Contributors may also face the risk of not having sufficient funds to cover increasing living costs due to inflation.

"Repeated withdrawals can also reduce financial protection against unexpected events in the future, such as health issues or loss of income," he said.

He therefore stressed that it is important for contributors to carefully consider before making withdrawals and preferably use it as a last resort after evaluating all other alternatives.

A Safety Net for Some

Meanwhile, Universiti Sains Islam Malaysia (Usim) Senior Lecturer in Banking and Islamic Finance at the Faculty of Economics and Muamalat Dr Mohd Faisol Ibrahim expected that EPF Account 3 could transform contributors' savings landscape, especially those with savings below RM10,000.

He said this account functions as a mandatory emergency savings system for members, requiring them to deposit 10 per cent of contributions to discipline themselves in financial management and prudent spending.

"At least, members will have emergency savings in their account to use when unexpected events occur.

"Although members can withdraw funds from Account 2, the conditions imposed can safeguard contributors' savings during retirement so that they remain adequate and undisturbed, while maintaining quality of life in retirement," he said.

He also commended the EPF's restructuring of Retirement Accounts, Prosperity Accounts, and Flexible Accounts as a positive step towards fostering financial responsibility during challenging economic times.