Don’t lose out on long-term gains by withdrawing funds early from EPF



From Tan Peck Leong

In recent times, the Employees Provident Fund (EPF) has seen a significant withdrawal of RM7 billion from the newly created Account 3, raising concerns about the financial future of many Malaysians.

This alarming trend highlights both the dangers of dipping prematurely into retirement savings and the immense potential of pooled funds to generate substantial returns for the people.

To put RM7 billion into perspective, consider the market values of some major Malaysian companies. Maybank stands at RM120 billion, Tenaga Nasional Berhad (TNB) at RM80 billion, CIMB Group at RM72 billion, Affin Bank at RM6 billion, and Maxis at RM27 billion.

The recent withdrawal of RM7 billion from EPF is a staggering amount, close to the entire market value of Affin Bank.

A total of 2.93 million people, or 22.6% of EPF members aged below 55, withdrew this money. With an average withdrawal amount of RM2,382, one must question the long-term implications of this decision.

What can RM2,382 accomplish in today’s economy? If we break it down, this amount could cover 1.5 months of meals, assuming a daily budget of RM50 for breakfast, lunch and dinner. Alternatively, it might buy half an iPhone, a third of a motorcycle or cover 45 days’ of basic meals.

While this money can provide temporary relief, its utility is limited when considering long-term financial stability.

Consider a person who has worked for 10 years at minimum wage, accumulating around RM2,400 in EPF’s Account 3. If left untouched, and assuming an average annual dividend of 6%, this amount could grow to nearly four times its original value over 25 years. This demonstrates the potential of compound interest to significantly enhance retirement savings, providing a much more secure financial future.

Now, imagine the impact of RM7 billion being invested collectively by the EPF. With such an amount, the EPF could acquire a small bank like Affin Bank, which has a market value of RM6 billion.

Alternatively, the EPF could purchase 6% of Maybank, 9% of TNB, 10% of CIMB or 26% of Maxis. These investments could yield substantial returns, further enhancing the fund’s ability to provide for its members in retirement.

This highlights a critical point: while RM2,382 might seem insignificant individually, when pooled together, these funds can have a massive impact. The collective power of these contributions allows the EPF to make strategic investments that benefit all members, ensuring better returns and financial security for the future.

Encouraging premature withdrawals from old-age savings is a dangerous move that threatens the quality of life in retirement. Nearly one out of every four EPF members aged below 55 has already made withdrawals from Account 3. This trend, if it continues, could undermine the financial stability of millions of Malaysians in their old age.

The RM7 billion withdrawal from the EPF serves as a stark reminder of the power of collective investment versus the limitations of individual spending. While the immediate financial relief might seem appealing, the long-term consequences of depleting retirement savings are dire.

It is crucial to recognise the value of preserving and growing these funds through strategic investments, ensuring a secure and prosperous future for all EPF members.

However, this situation also presents a challenging dichotomy. On the one hand, the EPF’s ability to leverage large sums of money for significant investments demonstrates the immense power of the masses. Collectively, these funds can achieve remarkable feats, buying substantial stakes in major corporations and generating substantial returns.

This collective strength can move mountains, transforming the economic landscape and securing financial stability for millions.

On the other hand, the weakness of the individual becomes starkly apparent when withdrawals are made. A sum of RM2,382, though seemingly helpful in the short term, pales in comparison to what these funds could accomplish if left to grow and compound over time. The decision to withdraw may stem from immediate needs or financial pressure, but it ultimately sacrifices long-term security for short-term gain.

This dichotomy poses a profound challenge: how can we balance the immediate needs of individuals with the collective power and long-term benefits of pooled investments? Encouraging premature withdrawals weakens the collective fund, diminishing its ability to make impactful investments. Yet, we must also recognise the genuine financial struggles that drive individuals to access their savings early.

Finding a solution requires a nuanced approach. It involves educating members about the long-term benefits of compounding interest, providing alternative forms of financial assistance to those in need, and creating policies that protect and enhance the collective strength of the EPF.

Only by addressing both the individual and collective perspectives can we ensure a future where the power of the masses truly benefits everyone, and the weaknesses of individual financial decisions are mitigated.

Ultimately, the RM7 billion withdrawal highlights a critical choice: harness the immense potential of collective investment or succumb to the limitations of individual actions.

The path we choose will shape the financial future of millions, determining whether we can move mountains together or struggle to shift the weight of a single stone alone. - FMT

Tan Peck Leong is a professor at the Arshad Ayub Graduate Business School, Universiti Teknologi Mara.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

Don’t lose out on long-term gains by withdrawing funds early from EPF