This picture taken on February 8, 2021 shows workers inspecting the quality of durians at a collecting centre in Raub in Pahang State. (Photo by Mohd RASFAN / AFP)

Malaysia’s Employees Provident Fund: An Emergency Populist Fund?


Hard questions must be asked of Malaysia’s depletion of workers’ hard-earned retirement savings. Was it justified to permissively sacrifice future income for present consumption? Did political interest thump economic analysis?

Appropriate to these sobering times, Finance Minister Tengku Zafrul spent New Year’s day in a decidedly unfestive style. He was busy parrying political pressures for Employees Provident Fund (EPF) accounts, already tapped for pandemic-related relief in 2020-2021, to be dispensed again for flood recovery expenses. For the country’s sake, it is hoped that he will prevail. But recent travails of the EPF warrant a robust inquisition.

The EPF, a Malaysian statutory body, was established in 1951 to facilitate retirement savings. Malaysian private sector workers mandatorily hold EPF accounts, to which the employee and employer ordinarily contribute 11 per cent and 12 per cent of their monthly salaries, respectively. There are currently 7.6 million active EPF accounts receiving contributions.

These scheduled deposits, plus annual dividends which have averaged 6 per cent annually over the past 5 years, grow EPF members’ personal savings. The pot has two parts. Account 1, comprising 70 per cent and designated for old age, cannot be withdrawn until the member reaches 55 years of age — or under exceptional circumstances such as renunciation of citizenship. Account 2, the remaining 30 per cent balance, can be used for specific purposes such as housing and education. 

In offering Covid-19 economic relief, Malaysia followed past crisis-time practices of waiving employer contributions to relieve businesses under financial stress, and reducing the rate of employee contributions to increase disposable income. In an unprecedented move, however, three schemes have been implemented allowing EPF members to withdraw from their accumulated savings.

First came i-Lestari, which permitted withdrawals only from Account 2. This measure, while considered anomalous and announced with caveats to EPF members, proceeded less contentiously, with the reasoning that pandemic contingencies fall within the ambit of Account 2.

However, in late 2020, debates surrounding Budget 2021 saw mounting political pressure from UMNO for the EPF reservoir to be tapped again. With Account 2 depleted, Account 1 became the target. The EPF management expressed unease toward unlocking Account 1, but conceded to a stringently monitored option. Figures within the fragile Muhyiddin Yassin-led ruling coalition, most prominently former Prime Minister Najib Razak, had leveraged their swing vote to get what they wanted. 

Thus, i-Sinar was introduced in November 2020 and took effect in March 2021. Initially, as formulated by the EPF, this facility was availed to account holders who had suffered job loss or pay cuts. These conditions were rescinded by February 2021. From July 2021, EPF accounts were opened again, this time under i-Citra. Table 1 summarises the three schemes, and shows the enormity of funds and EPF members involved.

 Source: EPF, Ministry of Finance Laksana Report 80.

In any crisis, policy priorities tend to swing to immediate needs, but hard questions must be asked of Malaysia’s depletion of workers’ hard-earned retirement savings and loss of decades worth of compounded returns. Was it justified to so permissively sacrifice future income for present consumption? Did economic analysis, or political interest, drive the decisions?

The issue demands a comprehensive, evidence-based reckoning. Chronic problems of inadequate retirement income have been spotlighted lately, but a critical post mortem of the EPF Covid-19 schemes must focus on the under-55 working age population actively contributing to the EPF (EPF members 55 and above do not need i-Lestari, i-Sinar or i-Citra; they are free to withdraw their savings). 

Details on the EPF withdrawals, besides the total amounts, have not been disclosed and the impacts have yet to be researched in-depth. Nonetheless, a June-July 2021 survey by the Social Wellbeing Research Centre generated some preliminary insights. We must not discount the reality of economic hardships, but the survey also shows that the allure of instant money is difficult to resist. Whereas public cash transfers amounted to the thousands, EPF withdrawals could reach the tens of thousands. 

Would retaining qualifying conditions have engendered better targeting? Only a quarter of survey respondents who accessed the Covid-19 schemes lost their jobs. 36 per cent of respondents suffered salary deduction of 25 per cent or more; 36 per cent experienced no income loss. 

We must not discount the reality of economic hardships, but the survey also shows that the allure of instant money is difficult to resist.

The specific ways the cash infusion helped families survive remains to be ascertained conclusively. We can gather from the survey that a majority accessed close to the maximum allowed: 60 per cent withdrew RM5,000-6,000 under i-Lestari, 72 per cent withdrew RM5,000-10,000 under i-Sinar. Also, much of the money was spent on daily needs, but also on loan repayment, with a difference between i-Lestari (52 per cent for daily expenses, 17 per cent for loan repayment) and i-Sinar (32 per cent daily expenses, 31 per cent loan repayment). Loan moratoriums were on offer throughout 2021. Policy-makers ought to be troubled if so many used EPF retirement savings to service loans. 

One would expect that calls to use the EPF for emergency relief would have subsided by now. Instead, attention should turn to plugging the gaping hole in millions of retirement savings accounts. 

But the same players, with Najib again at the forefront, are agitating for more EPF funds to be released to aid recovery from the recent catastrophic floods. The political context is also replaying, with factions of Malay-party United Malays National Organisation (UMNO) wielding clout over Prime Minister Ismail Sabri, who holds the highest government office but does not, as UMNO Vice-President, command the party. 

Apparent ethnic patterns of participation in the EPF Covid-19 schemes cannot be ignored. According to the survey, Malays, while comprising 55 per cent of Malaysian citizens, accounted for a disproportionately high 73 per cent of participants, with Sabah and Sarawak Bumiputeras making up 15 per cent, Chinese 5.5 per cent, and Indians 0.5 per cent. 

Are retirement savings being targeted, under cover of emergency funding, as popularity boosters with a particular ethnic base? The hint of such a possibility underscores the gravity of the EPF’s predicaments, and the need for an unyielding inquiry.


Lee Hwok-Aun is Senior Fellow of the Regional Economic Studies Programme, and Co-coordinator of the Malaysia Studies Programme, ISEAS – Yusof Ishak Institute.