KUALA LUMPUR – The Employees’ Provident Fund’s (EPF) coming roll-out of Account 3 for a segment of contributors’ retirement savings is expected to be leveraged on by the lower and middle income groups.
According to Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid, the account, which is also known as a “flexible account,” could be an avenue for the B40 income group and a segment of the M40 to stash their funds for emergencies.
This, he said, was due to the financial conditions within the economic classes as well as an analysis conducted by Bank Negara Malaysia (BNM) highlighting the lack of emergency funds among a significant portion of citizens.
“Based on studies conducted by BNM, 67% of Malaysians are not able to come up with emergency funds worth (at least) RM1,000. In that sense, the financial conditions among the M40 and B40 groups (leave them) quite vulnerable,” Afzanizam told Scoop.
“This flexible account will become an avenue for them to tap into in case of emergency needs (and) should be beneficial, especially considering changes to the economic landscape with rising numbers of gig employees and self-employed workers.
“Their income and financial conditions are quite susceptible to rising costs of living, so Account 3 should benefit them as well.”
Besides that, he said EPF contributors who saw no need to stash their emergency funds in Account 3 were likely to retain their savings in Account 1 for retirement and Account 2 for education, health and housing withdrawals.
“Those who are financially well off and literate can appreciate the concept of compounding interest and other relevant factors, plus EPF’s investment performance has been quite decent and they’re delivering good dividends.
“Those who might not need (emergency funds) might want to keep their money in (Account 1) for as long as possible so that they gain more when they retire.”
On the other hand, Geoffrey Williams, an economist at the Malaysia University of Science and Technology, said Account 3 was likely to benefit high-income earners with high savings while lower income groups with low savings might have less to gain.
“High income earners with high savings will have access to 10% of their savings more quickly and will recover more quickly because 75% of new contributions will go to Account 1.
“Meanwhile, low income groups with low savings will only be able to withdraw a little bit and it will still take a long time to build their savings,” he told Scoop.
The academic’s view was reflected by Putra Business School economic analyst Assoc Prof Ahmed Razman Abdul Latiff, who said that the T20 and some in the M40 would be minor contributors to Account 3.
“The majority (lower income earners) will not be able to utilise Account 3 due to insufficient amount of contributions available for them to withdraw.
“Since (contributors with higher incomes) already have a sizable amount contributed into their EPF accounts, they will have access to a much higher amount of cash when Account 3 is created.”
It is understood that under the revised EPF system, monthly contributions will be distributed across the three accounts, with 75% going into Account 1, 14% into Account 2 and the remaining 10% parked in the new Account 3.
While Account 3 is likened to a savings account, members will supposedly have the option to transfer funds to Accounts 1 and 2 to capitalise gains.
Details on the mechanism behind Account 3 have yet to be officially announced.
It has, however, been reported that EPF contributions made from May onwards will be allocated to Account 3, which will allegedly start with a zero balance. – April 25, 2024