Can the EPF withstand another withdrawal?

28 Apr 2022 02:00pm

After much fanfare and hype, the EPF finally relented to distribute the RM10,000 cash handout to the public.

After so much pressure from the public and politicians, the government finally instructed the EPF to give out the aid.

But the withdrawal came at a cost.

The EPF or the Employees Provident Fund had consistently said the withdrawal will seriously impact the long term savings of it's members.

As it is, 70 per cent of contributors have less than RM10,000 in their accounts.

Can the EPF afford to give out any more aid to the rakyat in the future? For economist Associate Professor Dr Ahmed Razman Abdul Latif, he does not think that there will be another round of EPF withdrawal.

The latest withdrawal showed that only eight per cent of the EPF members which withdrew their savings have less than RM1,000 in the account.

What this means is that the majority of the withdrawals were made by the M40 and T20 income groups who have enough savings in their EPF account, whereas the remaining B40 were unable to do so due to the fact that they have already exhausted their savings.

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This is highlighted in EPF's statistics that 6.6 million members have less than RM10,000 in their savings.

"In fact, 80 per cent of the members have yet to achieve basic savings to retire comfortably," Ahmed Razman told Sinar Daily.

To date, around RM141 billion has been withdrawn from the EPF, constituting around 14 per cent of EPF's total assets.

"Another round of withdrawal will prolong the current negative impact on EPF's ability to consistently give higher return on investments as EPF had to forego the higher return in assets from the overseas market to enable to aid the people.

Meanwhile, Bank Islam chief economist Dr Mohd Afzanizam Abd Rashid thinks that another round of withdrawal would affect EPF’s investment strategy.

This because the world's top five largest provident fund need to allocate more funds into liquid assets such as money market and government securities in order to meet the withdrawal.

"These instruments are liquid but they have low returns.

For instance, the Three-year Malaysian Government Securities yields are currently at 3.53 per cent as of April 22.

"It's not a question of affordability. Its about EPF being able to deliver a decent dividend rate to the contributors while at the same time, ensure a reasonable level of investment risks.

Speaking to Sinar Daily, Afzanizam said a good investment would require time in order for it to yield attractive returns typically around three years and above, depending on the instrument.

"If its alternative assets are private equity, infrastructure and real estate, it certainly requires a longer gestation period in order for EPF to reap the benefit.

"I think withdrawal schemes of such nature would undermine their investment strategy," said Afzanizam.

Economy rebounding

The EPF may also want to think on allowing any more withdrawals in the future as the economy is rebounding.

Bank Negara Malaysia predicts that the gross domestic product will grow at between five and six per cent this year.

This indicates a recovering economy and thus perhaps any future EPF withdrawals could be unnecessary. But the ball is in the government's court.

Almost all Malaysians vaccinated

Some 99 per cent of Malaysians are already vaccinated and thus the situation is expected to further improve this year.

The Statistics Department said some 500,000 Malaysians are still jobless currently but this is a much better scenario compared to the one million unemployed at the height of the pandemic.

Due to this factor, the EPF can ponder on whether to allow more future withdrawals in the future or not.

EPF still solid as a rock

Despite all the headwinds, the EPF is still solid as a rock managing some RM1 trillion of assets contributed by it's 14 million working depositors.

EPF has played it's role well and lived up to it's name which is to provide for the people.

But the situation has improved compared to 2020 which is when the virus broke out.

Only the EPF can decide on whether it wants to allow more withdrawals in the future or make the recent RM10,000 withdrawal it's last.