TWO days ago, a colleague walked into my office for a chat, and as with all chats, the subject moved to Covid-19 and some of the measures the government was taking, including allowing withdrawal from Account 1 of the Employees Provident Fund (EPF), previously reserved only for retirement.

It transpired that this person was planning to take the maximum possible from Account 1, under the government’s recent move to allow withdrawals to fight the economic downturn caused by Covid-19. I had described this as the RM60 billion scam at EPF last November. We had a short discussion, and I was convinced this article needed to be written.

For most people, however, especially if EPF is to provide a safe nest egg for them in the future, when they are no longer able to earn an income or they need to supplement their income with savings and returns from savings, EPF offers an incredibly safe haven. There is simply nothing else available like it in Malaysia.

The government guarantees your principal sum in EPF and a return of at least 2.5% a year. Since 1963 – a period of 56 years, longer than most of you have lived – it averaged a rate of return of more than 6% a year. Now, you find me if you can, an investment that is next to riskless and gives you that kind of return.

Yes, the noises are there – but be careful who you listen to. There are some people who want you to withdraw EPF money and invest with them for a fat fee and commission, which you lose upfront. The least harmful of these are unit trusts, but there are others who are a lot, lot worse.

But remember, there are no guaranteed returns and your principal is not safe – you can lose your shirt, and people do, even if you invest in unit trusts – a stock market crash can wipe nearly all of it off.  Ask your older friends.

The whispers going around is if the government goes bankrupt, you won’t get your EPF money. But if the government does indeed go bankrupt – look, this isn’t even a possibility now – you would lose your money if you kept it in a bank because most probably, the bank would have gone bankrupt earlier. In Malaysia, there is nothing safer than a government guarantee when it comes to money. Yes, that’s true.

Don’t get me wrong. If you have read my articles, you know I don’t like this backdoor government, either. I know they are leading us down the garden path to nowhere, and they will cost us some.

But I have faith they won’t last long, and after that, we will see some semblance of normalcy, and perhaps, even a growth trajectory that may mean a better life for all of us and improved conduct. Life continues. It will pay to keep some of your money somewhere safe – the world is not ending anytime soon, although some will try to convince you otherwise.

Beware even more if you are using the government’s hare-brained i-Sinar scheme, forcing it upon EPF and allowing you for the first time to withdraw from Account 1, where 70% of your EPF money is, and was previously strictly for retirement purposes.

For those of you who have RM90,000 and below in Account 1, you have access to any amount up to RM9,000, subject always to a minimum of RM100 left in the account. The amount repaid will be staggered over six months. But, look! If you have, say, only RM9,100 in your Account 1, you can still withdraw RM9,000, almost all – 99% – of your savings, just leaving RM100. Those who have above RM90,000 can withdraw up to 10% of their Account 1 savings with a maximum of RM60,000.

How ridiculous is that – up to RM9,000 in EPF, and you can more or less empty your retirement savings accounts! This move is about the worst the government could have taken to stimulate the economy, because it encourages the ones with the lowest incomes to spend most of their own savings to stimulate the economy. In other countries, they give the poor money to spend in difficult times!

Now, 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 – a vivid demonstration of the glorious power of compounded interest and how you can make it work for you. 

You can use handy web calculators to work out other tenures and amounts. If you had RM100,000, it would be worth RM574,000 by then. How very nice!

Now, here’s the bad part to remember to avoid, and remember well: that RM57,400 disappears forever – gone, kaput, whatever term you want to use, because you spent that RM10,000 today.  

The average person will never recover this money, will never see RM57,400 in 30 years time. Please, don’t be that average person – keep your money with EPF and collect. Don’t listen to this backdoor government that wants you to spend your hard-earned money.

The only exception is if you want to invest overseas, or if you have something that you think will give you great returns. But you should do that with your current savings over and above EPF, and leave your EPF money to compound and accumulate in safety for your retirement. – The Vibes, January 21, 2021

P. Gunasegaram, a former investment analyst, believes personal finance should be made a compulsory subject in schools. He is editorial adviser of The Vibes and executive director of advocacy group Sekhar Institute