Sedikit-sedikit lama-lama jadi bukit – Old Malay proverb
SMALL amounts of money put away regularly over long periods of time can accumulate a mountain of savings over decades, which can be a useful cushion against loss of income when you are no longer in employment many years from now.
That’s the reason the Employees Provident Fund (EPF) was set up – for you to build a pool of savings for retirement by compulsorily requiring contributions from both employees and employers to the fund.
It was a scheme to protect all of us against our own foolishness of spending everything we earn so that there would be some form of buffer for us in old age when we can’t find jobs and/or are unable to work anymore.
Even then, for most of us, it would only be a temporary measure because the savings can be quickly spent.
A fit of insanity
But now the government, specifically the Finance Ministry (which controls EPF), in a fit of insanity, allowed those with RM10,000 or less in their pool of retirement savings to withdraw all of it save for RM100. These and other measures by EPF will pump some RM130 billion into the economy.
Why “insanity”? Because these are the people who need protection the most, but they are being used as fodder to feed economic growth when they are the ones least equipped to do so. And, this is a pre-election ploy to make them feel good by prematurely handing their retirement cash to them.
And withdraw they did. In the euphoria of a good dividend announcement of 5.2% – way ahead of fixed deposits from banks, which are now less than half that – the depressing news was that 30% of active EPF members had emptied their retirement accounts, save for RM100. That’s 1.6 million members.
Further, 60% of active members, or three million members, will empty all savings in their Account 2, which takes up 30% of their savings and are for purposes such as housing, medical care, and education.
“Members’ balances are declining alarmingly… Without Account 2, our members will not be able to use some of their savings to invest in a roof over their heads, to invest in upgrading their skills, to invest in their health… We are very concerned about these numbers,” said outgoing EPF chief executive Alizakri Alias at a press conference to announce the dividends.
They may lose tens of thousands of ringgit at retirement as a result of premature withdrawal!
But, you may say, they need the money now because of Covid-19.
No, not for most of them because their incomes have not been reduced. Here’s why.
Official figures show that between March (the onset of Covid-19) and August (the last month for which figures are available), the unemployment rate went up from 3.9% to 4.7% – an increase of 0.8%.
Based on a labour force of 15.9 million, the increase in unemployment at a time the impact was highest was only 127,000 persons, but instead, conditions have been relaxed for anyone who is an EPF member to withdraw the money whether their income is affected or not. The 1.6 million figure represents 13 times the number of all people who lost their jobs – a huge overkill.
Why is the government doing this? We have established it is not to help EPF members – in fact, we have shown that it damages them badly. It completely destroys retirement savings for some 1.6 million people, while killing about three million people’s ability to make alternative investments such as buying property, funding emergency medical expenses and financing education.
Getting the poor to spend
There are two reasons one can think of. The first is to help reflate the economy with increased spending – getting mostly the poor to spend their precious retirement savings whether or not they need to right now.
The second is the feel-good factor for people, over four million of them, who suddenly have extra money to spend despite their incomes not being affected by Covid-19, which the government hopes will help win them the elections.
This report quotes Alizakri as saying that some RM130 billion will be released from EPF via several measures.
These include an estimated RM90 billion from i-Sinar Account 1 (retirement account) withdrawals, RM20 billion from i-Lestari Account 2 withdrawals, RM13.6 billion from the reduction in contribution rates, which has increased members’ disposable incomes, and RM85 million in deferred contributions for employers seeking respite in terms of cashflow.
Alizakri has departed from EPF, and as I explained earlier, this does not bode well for the fund.
A day after the announcement of his departure, the i-Sinar conditions for withdrawal were relaxed, making it possible for anyone to qualify for the scheme – whether their incomes are affected or not.
Ironically, Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz on February 11 on his Facebook page said: “As I’ve often stated before, the government continues to be committed to guaranteeing the well-being of the people. For now, EPF is in the process of repealing i-Sinar conditions. This step is expected to help EPF members overcome the challenges of the Covid-19 pandemic.”
The move, in fact, seriously jeopardises EPF savings for millions of members, encourages wasteful spending of retirement savings, and uses the money of, largely, the poor to stimulate the economy, adversely affecting the long-term well-being of the vast majority of most members whose incomes are not affected one bit by Covid-19. – The Vibes, March 2, 2021
P. Gunasegaram says most of our leaders threw their consciences out the window a long time ago in favour of political expediency. He is editorial consultant of The Vibes and executive director of Sekhar Institute