The Employees Provident Fund (EPF) in Malaysia has recently implemented a new plan that gives members three accounts instead of the previous two. Under the new structure, 75 per cent of an individual’s monthly contribution will be allocated to Account 1, 15 per cent to Account 2, and the remaining 10 per cent to Account 3, which is the new flexible account. This is a change from the previous allocation of 70 per cent to Account 1 and 30 per cent to Account 2. Funds in Account 1 cannot be withdrawn until the member reaches the age of 55, while funds in Account 2 can be used for purposes such as housing.
The move by EPF to increase the allocation of funds to Account 1 while also introducing a flexible Account 3 serves two objectives. Firstly, it allows EPF to lock up an additional five per cent for the long term, thereby increasing its cash reserve and liquidity. Secondly, it gives members flexibility in how they utilize their funds. With 16.07 million members, of which 8.52 million are active, EPF is a significant retirement fund in Malaysia with assets worth RM1.135 trillion. This change is seen by experts as having both financial benefits for EPF and crowd-pleasing political objectives.
The decision to introduce the new flexible EPF account was partly motivated by pressure from the opposition coalition in Malaysia. Between 2020 and 2022, 8.1 million Malaysians withdrew RM145 billion from the EPF through four rounds of COVID-19 withdrawals. This pressure for further withdrawals came from former Prime Minister Muhyiddin Yassin, who is currently the chairman of the opposition Perikatan Nasional coalition. The withdrawals were initially approved during Muhyiddin’s tenure and continued under the leadership of Prime Minister Ismail Sabri Yaakob.
Despite political pressure to approve further withdrawals, Prime Minister Anwar Ibrahim has emphasized the importance of protecting contributors’ savings. Anwar has stated that while there is pressure to allow more withdrawals, his priority is to ensure that contributors’ money is safeguarded for future use. However, during the 2024 Budget announcement, Anwar appeared to reverse his earlier stance by introducing the flexible EPF account, which allows contributors to access their funds at any time. This move seems to have been influenced by the desire to address the needs of EPF contributors while also managing political expectations.
Overall, the restructuring of EPF accounts in Malaysia reflects a balance between financial stewardship and meeting the needs of contributors. By increasing funds in Account 1 and introducing a flexible Account 3, EPF aims to enhance its financial stability while allowing members more control over their savings. The political context, including pressure from opposition parties for further withdrawals, has also played a role in shaping the EPF policy changes. Ultimately, the goal is to ensure the long-term sustainability of EPF while addressing the immediate financial needs of Malaysians during challenging times like the COVID-19 pandemic.
