Redistributive policy

ETH withdrawals should be a policy of last resort

Dr Juita Mohamad

KUCHING (March 19): Employees Provident Fund (EPF) members who opt for another withdrawal of up to RM10,000 from their savings could risk having insufficient savings in retirement, the Institute for democracy and economic affairs (Ideas).

In its statement yesterday, the institute said this will become an increasingly relevant issue as Malaysia begins its transition to an “aged society” over the next two decades.

“Ideas believes that ETH withdrawals should be a policy of last resort, used only in emergency situations.

“Instead, existing funds such as the National Disaster Relief Fund (TBBN), National Disaster Relief Trust Fund (KWABBN) and ‘zakat’ (tithe) would have had to be used,” he said.

The institute noted that to date the government has allowed EPF savers to withdraw up to RM71,000 from their pension funds through three previous EPF withdrawal schemes, totaling RM101 billion. .

As EPF pointed out, this has led to a total of 6.1 million members now having less than RM10,000 in savings in their retirement funds.

EPF further pointed out that in October last year, 3.6 million contributors had less than RM1,000 in their accounts and that within this group, two million Bumiputera members had less than RM1,000. Savings RM.

The director of the Ideas Economy and Business Unit, Dr Juita Mohamad, has acknowledged the government’s intention to allow ETH withdrawals as a means of providing immediate relief to low-income Malaysians who were still struggling in the wake of the Covid-19 pandemic as well as the recent floods, but she also highlighted the specific aim of the EPF being set up – to provide a social safety net for retirees in Malaysia.

“The (EPF) withdrawal and its timing must reflect this objective – for retirement purposes, and for these purposes only.

“Ideas believes that the decision to continue to allow endless withdrawals from the ETH is not based on sound economic logic; it is rather a “reflex” reaction, responding to the political agenda.

“Such short-term thinking would have a detrimental long-term impact, and we urge political leaders to consider the negative impact such a policy has on our retirees and future generations.

“Keep in mind that to allow people to withdraw their savings, EPF would be forced to sell more of its overseas assets at a time of volatile market conditions due to the ongoing war in Ukraine, inflationary pressures on global energy and commodity prices, as well as expectations of central banks raising interest rates later this year,” Juita said, adding that if the ETH were forced to adjust local equity holdings, this could have a negative impact on Bursa Malaysia, further affecting the ETH accounts.

According to World Bank data, Malaysia was already an aging society in 2020, with around 7% of the population aged 65 and over.

“According to the latest projections, Malaysia will become an ‘aged society’ by 2044, with more than 14% of its population over the age of 65.

“It is crucial that our growing population of retirees each have an adequate cushion when they retire.

“With the economy recovering and the labor market strengthening in the absence of lockdown, Ideas believes that FPE withdrawals should be used as a last resort – only in emergency situations.”

Additionally, Juita said there are various existing funds at the federal and state levels that could be pooled and tapped to help vulnerable households.

These funds would include the TBBN, funded by donations from various parties and was set up to manage said disaster relief donations; as well as the KWABBN, which was established in 2016 under the Financial Procedure Act 1957 for the purpose of assisting victims of disasters, paying for disaster management activities or costs, and providing assistance to governments , state departments or agencies.

At the state level, zakat proceeds should also be distributed more as “a powerful tool for poverty reduction and wealth redistribution”, Juita said.

“Such a tool can be deployed more effectively at the micro level, targeting vulnerable households in a post-pandemic setting, as it can serve to supplement existing federal funds.

“In the long term, the Malaysian government should focus on creating more formal social safety nets that would cover both formal and informal workers,” she added.