THE departure of Employees Provident Fund (EPF) CEO Tunku Alizakri Alias raises serious concerns, especially because of murmurings he is unhappy with the government-proposed i-Sinar scheme. This allows, for the first time, cash withdrawals from Account 1, which is meant solely for retirement.

The i-Sinar scheme, announced in Budget 2021 on November 6, is supposed to cover 600,000 EPF members. Under pressure by Umno, it was expanded to cater for two million members, and then again to cover eight million. This is, in part, to get Umno support to enable the passage of the Budget proposals in Parliament.

EPF has some 14.6 million members, out of which some 7.6 million are active. That probably means that the expanded i-Sinar scheme covers most active members who have enough money in their Account 1 to withdraw under the scheme.

Tunku Alizakri is to be replaced by current Tenaga Nasional Bhd CEO Datuk Seri Amir Hamzah Azizan on March 1. It triggers off a musical chair of sorts, especially with Khazanah Nasional Bhd managing director Datuk Shahril Ridza Ridzuan reported to be due for replacement.

Recall that before the current Perikatan Nasional administration did its own musical chairs last year – appointing politicians to plum government-linked companies (GLC) positions – the previous Pakatan Harapan government did one round in August 2018, in a move led by Council of Eminent Persons chairman Tun Daim Zainuddin.

The Daim reshuffle saw the entire Khazanah Nasional board resign to make way for changes. Tunku Alizakri, the previous EPF deputy CEO, moved up to CEO when Shahril Ridza was picked to head Khazanah Nasional. Both were well-respected in the industry as people who care for the interests of EPF and its members.

In the EPF announcement, chairman Tan Sri Ahmad Badri Mohd Zahir said: “Tunku Alizakri will be continuing his contributions towards public service in a different capacity.” He did not elaborate. It will be interesting to see where he emerges.

The EPF Act 1991 gives considerable power to the finance minister to make board appointments and remove board members. The minister can also give instructions to EPF. This makes it tough for the board and executive members to act independently when the minister intervenes – short of stepping down.

While EPF, historically, has been used by previous governments to further the latter’s aims, this has sometimes been at the expense of its members, including questionable investments that lost money.

Over the last decade and more, it has done much to improve its processes, and has done a pretty good job of becoming more professional and managed to keep the government from interfering in its operations.

But last year, a series of moves by the government resulted in EPF funds being used to reflate the economy in the face of the Covid-19 pandemic, to the direct detriment of the members, as I explained in this article, The RM60 billion scam at EPF.

Employees Provident Fund CEO Tunku Alizakri Alias is well-respected in the industry as a person who cares for the interests of EPF and its members. – Bernama pic, February 11, 2021
Employees Provident Fund CEO Tunku Alizakri Alias is well-respected in the industry as a person who cares for the interests of EPF and its members. – Bernama pic, February 11, 2021

The three main moves were:

1. February 27, 2020 – It was announced that with effect from April 1, employees’ minimum statutory contribution to EPF was reduced to 7% from 11% of their salary, a reduction of more than one-third. Worse, if you want to contribute the 11% anyway, you need to fill up a form, skewing the choice towards the reduced contribution.

2. April 2020 – The so-called i-Lestari withdrawal facility from Account 2 – the discretionary withdrawal account (30% of total contribution) – which allows a maximum RM500 a month for 12 months, with a total of up to RM6,000. This benefited 4.7 million members, with a total value of RM11.6 billion, according to the finance minister in the Budget speech on November 6. 

3. November 6, 2020 – The i- Sinar programme was announced to permit withdrawals of EPF savings from Account 1 on a targeted basis. The amount allowed initially was RM500 a month, with a total of up to RM6,000 over 12 months.

This was the first sign of reluctance by EPF.

Tunku Alizakri said on Budget day: “Allowing members access to their EPF retirement savings other than what is provided for under the EPF Act 1991 is unprecedented and has never been done before. Account 1 (70% of savings) has always been designated for retirement, while Account 2 (30% of savings) is meant for discretionary withdrawals.

“Given the complexity of the situation, it is not an easy decision that can be made in a hurry. However, we found a middle ground to allow members access to their savings without jeopardising their future retirement.”

He said in this report that EPF will have to sell assets of RM60 billion to fill the cash shortfall, implying that is the amount of cash injected into the system by EPF changes.

However, this is now likely to be much larger. Umno pressured the government to liberalise EPF withdrawals to put cash in the hands of as much as eight million members, instead of the original 600,000 – more than 13 times the original figure.

This is probably a political move to gain favour with the electorate if elections are declared. There is little or no consideration as to whether members need it or not, and it is the political price that the government paid in return for the passage of budget legislation.

This could well be part of the reason for the departure of Tunku Alizakri from EPF. There is danger of going back to the bad old days when the fund was used to further government aims, to the detriment of members.

The needless withdrawal of retirement funds seriously cuts the amount members, especially low-income ones, receive at retirement – which is already very little to sustain a reasonable living in old age.

Let’s calculate what you forgo when you withdraw that EPF money. Remember, EPF has never paid less than 5% per year since 1963, and the average over the period is more than 6% per year. Assume, for the sake of simplicity, that return of 6% and you are 30; you have enough savings to withdraw RM10,000 and spend all of it – which is what most people do.

In 30 years from now, when you retire, that RM10,000 would have grown, burgeoned and bloomed 5.74 times, or to RM57,400. That’s totally wiped out as retirement savings now as a result of the withdrawal.

We need a CEO who can stand up to the government and make it see sense, and for the government to give space to the board and CEO to always act in the best interests of EPF members. Otherwise, things can get perilous. We must not go down that path again. – The Vibes, February 11, 2021

P. Gunasegaram says all the legislation in the world can’t substitute for good people at the top. He is editorial consultant of The Vibes and executive director of advocacy group Sekhar Institute