THE crumbling of conditions for the Employees Provident Fund’s (EPF) i-Sinar scheme, which allows for unprecedented cash withdrawals from retirement savings, raises uncertainty and poses grave questions as to whether the fund is acting in members’ interests.
As all conditions for i-Sinar are dropped, the people who most need retirement protection will be the ones to withdraw most of their savings, even if their incomes have not been affected due to the downturn caused by the Covid-19 pandemic.
On February 11, one day after the announcement of the departure of its chief executive officer Tunku Alizakri Alias with effect from March 1, the fund’s resistance to the i-Sinar programme crumbled.
In a meek surrender, the fund said: “EPF acknowledges the announcement by Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz on the removal of the i-Sinar facility criteria to provide more members with financial relief via their Account 1 funds.
“EPF seeks the understanding and cooperation from members in allowing it to undergo the necessary fine-tuning of its system, processes and governance required for i-Sinar Online. This is to ensure the ease and security of members applying for this facility to assist them in these trying times.”
Contrast this with the defiant statement that Tunku Alizakri made to Harian Metro after the budget announcement on November 6, which proposed the i-Sinar scheme: “Perhaps, I am the most hated person in Malaysia right now for making unpopular decisions. Let the people criticise me, but I will do my job to protect the future of members.”
Tunku Alizakri had said then that EPF had not decided on allowing contributors to withdraw funds from Account 1 (meant for retirement) and was still discussing with the Finance Ministry, adding that EPF would not mortgage the future of its members by making reckless decisions.
The i-Sinar programme, for the first time ever, allows withdrawal from Account 1 meant for retirement. In the original announcement in Budget 2021 on November 6, it was supposed to have covered just 600,000 EPF members out of 14.6 million who needed to withdraw from their EPF account to make ends meet due to loss of job or income.
However, in two steps, the scheme was widened first to benefit two million members and then eight million members, over 13 times the original figure, in a move to satisfy Umno demands in return for support of the passage of the budget.
Tengku Zafrul’s February 11 announcement that all conditions for i-Sinar withdrawal are dropped is drastic, because anyone – even those whose incomes have not been affected by the pandemic – can withdraw from their retirement account.
This is a highly irresponsible move because it allows those in the lower-income group to basically empty their retirement accounts even if their incomes remain the same. Previously, members had to show that their incomes have been affected by at least 30% before they can withdraw the funds.
Even so, the EPF announced in early January that it has approved 2.5 million out of 3.9 million applications totalling RM19.6 billion as of January 4. With the removal of conditions, this is likely to amount to several times more than this.
However, this ill-considered move, designed to make people feel good by giving them cash to spend – their own money in the form of retirement savings – can only be politically motivated. Elections are likely some time soon.
The second reason is that this withdrawal, mostly by the lower-income group, will boost economic activity – the poor are being encouraged to use their retirement savings to save the economy and make the government look good.
Now, members can withdraw from their retirement account as follows:
1. For those with RM100,000 and below, they can withdraw up to RM10,000. The payments will be staggered over six months with the first payment amounting up to RM5,000.
2. For those who have more than RM100,000, they can withdraw up to 10% of their Account 1 savings. However, the maximum total amount allowed to be advanced is RM60,000. The payments will be staggered over six months with the first payment amounting up to RM10,000.
Under Category 1, they can do so as long as they have a balance of RM100 in the account. If you have RM10,000 in your account, you can withdraw RM9,900 – that’s 99% of your savings. If you are 30 and withdraw RM10,000, in 30 years, at the age of 60, your retirement account will be less by RM57,400, assuming EPF returns 6% per year.
Now, here’s the rather frightening part. Tunku Alizakri said in the statement to Harian Metro that 43%, or 5.38 million, of EPF members under the age of 55 have savings of less than RM10,000 in Account 1.
Statistics also show that 54%, or 137,000, of its 245,000 members who were 54 years old last year have savings of less than RM50,000 and will retire with an income of only RM200 per month spread over a period of 20 years.
“The amount of RM200 is far below the country’s poverty level of RM2,208 for one household and RM2,450 for the basic expenses of a senior citizen as stated in a survey by the Social Welfare Research Centre,” Tunku Alizakri said.
This is already a terrible indictment on our retirement scheme, which is badly hobbled by poor incomes. On top of that, the Finance Ministry is twisting EPF’s arm to allow members to dip into their already meagre savings, purely for political aims.
Something like half of EPF members will have their retirement funds pretty much emptied because of i-Sinar, while probably another quarter will see their savings severely depleted. That’s three quarters of EPF members.
Effectively, the government is forcing EPF to completely deviate from its stated vision of “helping members achieve a better future” and its mission: “Safeguard members’ savings and deliver excellent services”.
No responsible government would dare do this. – The Vibes, February 16, 2021
P. Gunasegaram says it is time the EPF act is changed to give far less power over EPF’s affairs to the Finance Ministry. He is editorial consultant at The Vibes and executive director of Sekhar Institute