EPF withdrawals ‘insufficient’ to help low-income earners, says economist

Employees Provident Fund contributors are allowed to withdraw RM500 a month for a year through the i-Lestari Account 2 to tide over difficulties faced during this Covid-19 outbreak.

PETALING JAYA: The government’s move to allow Employees Provident Fund (EPF) contributors to withdraw RM500 a month for a year is “clearly insufficient” to help Malaysians cope with the financial fallout from Covid-19, said an economist.

Christopher Choong Weng Wai

Khazanah Research Institute’s (KRI) deputy director of research Christopher Choong Weng Wai told FMT he was concerned whether the measure announced by Putrajaya on Monday would actually reach those in need such as the poor, low-income and self-employed workers.

While Choong noted that the withdrawals were a form of emergency relief for households who had cash flow problems due to Covid-19, KRI’s initial calculations indicated that the bottom 40% of active members in EPF might not have enough savings in Account 2 for them to withdraw RM500 per month for the entire 12 months.

“We have to think of this as ‘inter-temporal consumption smoothing’, allowing workers to draw from their future savings to address present needs. But it is clearly insufficient as workers with lower savings and those who don’t contribute to EPF would be excluded,” he said.

Prime Minister Muhyiddin Yassin said the initiative would see an estimated RM40 billion in withdrawals by some 12 million EPF contributors.

However, Choong said he didn’t think the full RM40 billion would be withdrawn as those who had sufficient EPF savings would prefer not to utilise it as yet because its dividends were higher and safer than conventional savings plans.

Noting that the bulk of the RM20 billion stimulus announced last month, or RM13 billion, was derived from the reduction in the EPF minimum employee contribution rate from 11% to 7%, Choong said the federal government and Bank Negara Malaysia were only providing RM3.5 billion each to combat the economic downturn caused by Covid-19.

“This is clearly insufficient, especially when we need to scale up funding for frontline workers, prevent mass unemployment and expand social assistance,” he said, adding that some of the stimulus measures for domestic tourism would be pointless as the movement control order had been implemented on March 18.

Instead of withdrawals from EPF, Choong recommended that the government scale up the Employment Retention Programme (ERP) to employees affected by wage reduction as well as self-employed workers, and to use the minimum wage of RM1,200 as the benchmark in calculating the pay-out amounts.

Announced by Muhyiddin on March 16, the ERP provides monthly financial assistance of RM600 for up to six months for those earning RM4,000 and below and who have been forced to take unpaid leave beginning March 1.

Crucially, Choong also called for a fresh injection of funds from the federal government.

“The allocation set aside under the first-round stimulus to help employees on unpaid leave is RM120 million. At the minimum, this amount needs to be tripled in the short term and further scaled up in the medium to long term.”