EPF Account 3: Avoid impulsive withdrawals, financial planning crucial - Experts

Expert said instead of resorting to impulsive withdrawals, contributors should leverage the account as a contingency through self-discipline and responsible financial planning.

12 May 2024 12:00pm
Photo for illustration purpose only. - File photo by Bernama
Photo for illustration purpose only. - File photo by Bernama

KUALA LUMPUR - The ability for Employees Provident Fund (EPF) contributors to withdraw funds from Account 3, especially upon retirement, presents both opportunities and challenges.

While the new account, officially called ‘Akaun Fleksibel’ aims to assist members in establishing an emergency fund for their future, the risks far outweigh the benefits, especially when they are allowed to withdraw their savings at any time according to their needs, experts warned.

Senior Fellow and Director of the Institute of Islamic Understanding Malaysia (IKIM) Dr Muhammad Hisyam Mohamad said that instead of resorting to impulsive withdrawals, contributors should leverage the account as a contingency through self-discipline and responsible financial planning.

He said although EPF has given the flexibility for its members to withdraw their money from Account 3 at any time starting May 11, the latest move was not the original objective of the retirement savings fund.

EPF, he said is generally a savings account for retirement and members were previously allowed to withdraw their savings from Account 2 for specific purposes such as education, health or housing.

"This time, Account 3 was created to meet the basic needs of the contributors and those who are faced with emergencies. This initiative would in some ways help members of the community who are badly hit by the rising cost of living and are still saddled with low wages or salaries.

"However, what is worrying is withdrawals are made toward non-urgent matters such as buying gadgets, decorating the house, buying car accessories or to keep up with the fashion trends, and what’s more, purchases can easily be made through the ‘buy now pay later’ platform, he told Bernama recently.


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According to EPF’s website at https://www.kwsp.gov.my/, the retirement savings fund has undertaken a restructuring of its members’ accounts aimed at bolstering income security post-retirement and addressing immediate needs.

The agency introduced three new accounts namely ‘Akaun Persaraan’ (formerly known as Account 1) which serves as a repository for savings aimed at retirement; ‘Akaun Sejahtera’, previously known as Account 2, is designed to cater to various life cycle needs and the latest Account 3 or ‘Akaun Fleksibel’ which was introduced on April 25 to provide flexibility for short-term financial needs.

Effective May 11, 2024, new contributions will be based on percentage: Akaun Persaraan (75 per cent), Akaun Sejahtera (15 per cent) and Akaun Fleksibel (10 per cent) compared to previously, that is, Akaun 1 (70 per cent) and Account 2 (30 per cent).

After the restructuring, balance in Account 1 and Account 2 will remain in Akaun Persaraan and Akaun Sejahtera respectively, while Akaun Fleksibel will start with a zero balance. The dividends will remain the same across all three accounts.

Elaborating, Muhammad Hisyam said the move to introduce Account 3 would go a long way in addressing large-scale withdrawals as seen during the COVID-19 pandemic.

"However from other aspects, the introduction of Account 3 means that 10 per cent of contributors’ savings which were supposed to be kept in the EPF for retirement or housing, education or health purposes previously, can be easily withdrawn by members at any time.

"In other words, if a member makes frequent withdrawals through Account 3, 10 per cent of his or her savings for old-age will be depleted before retirement.

"While the total is only 10 per cent, contributors should not lose sight of the consequences given that Malaysia will experience an ageing population by 2030 where the percentage of people aged 60 years and over will reach 15.3 per cent of the total population and at the same time, costs of living will also escalate.

On the issue of insufficient funds for retirement, he said during the Covid-19 pandemic, many badly hit contributors were struggling to make ends meet, hence the government decided to allow contributors to make four types of withdrawals from their EPF savings involving i-Lestari, i-Sinar, i-Citra and Special Withdrawal.

According to him, as a result of the series of withdrawals, the number of active formal members who met the basic savings benchmark of RM240,000 by the minimum age of 55, was also reduced.

For the record, the Ministry of Finance was also quoted as saying in a written reply via the Parliament website on Nov 20, 2023, a total of 6.3 million members or 48 per cent members under 55 years old have savings of less than RM10,000 in their accounts as of Sept 30, 2023.

"This indirectly signals that if the issue is not addressed, most contributors would be in dire financial straits during retirement. With continuous rise in average life expectancy, the contributors’ savings will not be sufficient to meet their needs for 10 to 20 years after their retirement.

"As such, the government should step up efforts to promote financial literacy among the people so that they will be able to manage their finances or income in a more effective way,” he added.


To a question on the practicality of this initiative in addressing the cost of living issue among the people, Muhammad Hisyam said, it would depend on the members’ monthly contribution.

He said with larger contribution in their Account 3, members would be able to cope with the cost of living given the higher disposable income for spending.

"In Malaysia, employees contribute up to 11 per cent of their salary monthly to the EPF while employers need to contribute up to 13 per cent of employees’ salary.

"However, for a low-salaried employee who receives, for example, a minimum salary of RM1,500, the contribution from employee and employer may be around RM345 a month and here, total savings that are deposited into Account 3 will be RM34.50 only.

"Actually, this issue is related to the low wages received by Malaysian workers. For example, the minimum wage of RM1,500 is actually far less than the living wage for an individual of RM2,700 as proposed by Bank Negara in 2017. If salaries and wages received by workers remain low and do not rise in tandem with costs of living, the pressure will be on the affected individuals who will not be able to improve their quality of life,” he said.

He also said that through Account 3, contributors will have surplus cash in hand, but for the long term, their retirement funds may be reduced by 10 per cent if they continue to make frequent withdrawals and miss the opportunity of generating income through monthly dividends declared by EPF, which are considered as competitive in the market.

"EPF has projected that some RM25 billion would be withdrawn in the initial three-month offer period, while the monthly withdrawals after the front-loading phase would be around RM4 billion to RM5 billion.

"This will see a flush of funds in the market which will help businesses and entrepreneurs through the contributors’ spending. However, it could also give rise to price increases if no proper control is taken by the government, and worse, the salary increase for civil servants at a rate of more than 13 per cent starting end of this year, will not augur well,” he said.


Meanwhile, Senior Lecturer of the School of Economics, Finance and Banking, Universiti Utara Malaysia (UUM) Muhammad Ridhuan Bos Abdullah said consumer savings and spending habits are largely influenced by the economic cycle.

He cited the years 2021 and 2022 as examples when the EPF withdrawal trends were high due to the slow economic growth brought about by the pandemic.

Describing Account 3 as more flexible in encouraging self-employed groups to save, he said the current trend showed that most of the younger generation were geared towards self-employment or working as informal workers.

"When more people choose to work on a voluntary basis (informal workers), it indirectly will boost the workers’ social security or protection system.

"Account 3 can assist contributors during an economic cycle (economic downturn) or in facing economic vulnerability such as loss of income, etc. Account 2 still provides facilities for contributors to purchase a house and for their educational needs.

"After May 11, total savings in Account 1 will be increased to 75 per cent compared to 70 per cent previously. As such, the objective of saving for old age still remains and in fact, better, with the value expected to boost contributors’ savings post retirement,” he said.

Muhammad Ridhuan said that a stable and sustainable economic growth will be the determining factors for employers to pay contributors’ salaries for any groups T20, M40 or B40.

He said given favourable economic conditions in the short-term, contributions from contributors will stabilise, subject to no withdrawals seen from Account 3.

However in the long-term, the needs of contributors will change depending on the economic cycle and that contributors’ spending behaviour will also change due to increased family size, additional asset ownership as well as education needs of family members, etc.

"The government’s stabilisation policy is crucial for sustaining a stable economic environment. This approach will help mitigate the impact of economic cycles, as witnessed by the volatility in Gross Domestic Product (GDP) growth and the labour market in 1997/1998, 2008/2009 and 2020/2021 which triggered large-scale layoffs.

"Economic cycles are beyond expectation. Saving money through financial institutions and EPF, for example, is crucial as it helps contributors cushion the impact from unfavourable economic conditions especially after retirement.

"Asian nations such as Japan, South Korea and Singapore have high savings rate, their GDP and per capita income are also high. However, it is best that we use our own model based on our per capita income and GDP performance,” he said. - BERNAMA