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The government’s decision to allow members of the Employee Provident Fund (EPF) access to their Account 1 for i-Sinar facilities has received mixed reviews.
Just a month ago, the EPF had advised its members not to withdraw their savings from Account 1 in order to address the difficult challenges brought on by the Covid-19 pandemic outbreak.
Initially, Prime Minister Tan Sri Muhyiddin Yassin also echoed the same advice.
However, continued political pressure from some quarters had built up rapidly and now, withdrawals from Account 1 of up to RM10,000 are allowed as an option for some eight million EPF members.
According to Dr. Yeah Kim Leng, Professor of Economics at Sunway University School of Business, a retirement fund should be the last resort to save a person from a precarious financial stalemate they are experiencing.
“Even if it means that the individual has to get a short-term loan to help them stay afloat.
“This is because the projected EPF dividends could be higher than the interest charges on some personal loans from licensed financial institutions,” Yeah told StarBiz.
He acknowledged that there are some people who have financial difficulties and “if there is no better option, then an EPF withdrawal can really be categorized as a last resort and is justifiable.”
“But for those who still have the means to support themselves with the various cash grants, if they can get by without using the EPF, then this is a better option.”
He did emphasize that retirement savings should be left alone, as they would continue to grow in the long term.
There is also concern that people may use the EPF Account 1 withdrawal option to waste unnecessarily on unproductive expenses or that some tend to be scammed out of their retirement savings.
“There are some who may unknowingly be scammed or tricked into leaving and then see the money disappear,” he added.
Yes, you also believe that the EPF has sufficient liquidity to cope with the sudden increase in cash withdrawals during this period.
“The size of the EPF fund is large, so I think the overall impact on the fund is quite small. I think their short-term instruments can be liquidated to meet this sudden demand, ”explained Yeah.
As the i-Sinar facility is an unplanned event, he noted that there may be cases where investments in stocks and bonds need to be liquidated below market price or at a loss.
“This action will affect the overall performance of the EPF.”
So there should be a time limit on withdrawals, Yes said, adding that it should only be allowed until mid-2021 or until the economy recovers and regains momentum again.
Meanwhile, founder of financial planning company MyFP Services Sdn Bhd, Robert Foo (pictured below), said he found some quarters uncomfortable with recent announcements.
“I think there is a silent majority that is genuinely concerned about the withdrawals from Account 1 of the EPF.
“The EPF may have to sell its most profitable assets to meet the demand for retirement liquidity.
“Then less profitable assets would be left, so the overall profitability would be lower,” he added.
Foo said that what is happening figuratively is similar to a strong shake up of the EPF balance sheets, as it is an unforeseen event.
“As in an earthquake, many people cannot see the long-term consequences, but only the immediate consequences.
“They just see that they could meet their loan installments and daily expenses.
“If they don’t plan (to get out of this situation), then they will run into a problem in the next 10 to 20 years,” Foo said.
Yes, he agreed that the root of the problem is not being addressed correctly, despite allowing withdrawals from EPF account 1.
“The problem is simply postponed and will be addressed later.
“So the onus really falls on people to truly protect their hard-earned retirement savings,” added Yeah.
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