KWSP has introduced a New Account named Akaun Fleksibel for Malaysians and it is free to withdraw anytime. Since the implementation of the Account Flexible in May 2024, RM2.93 million EPF members below the age of 55 have withdrawn an average of RM2,382. But, the big question is, how does this affect us as EPF members? Whether you have withdrawn or not, in this article we'll do a breakdown of what EPF is and the new EPF structure.
What is EPF?
Let's start with a little background on EPF. As many of you already know, EPF is a mandatory saving scheme for retirement in Malaysia. It was set up by the Malaysian government to ensure Malaysians have enough savings by the time they retire. I believe that without EPF, many Malaysians would retire poor.
The key reason why EPF is effective is that it’s mandatory. You have to contribute to EPF even if you don’t want to. Based on its structure, you can’t simply withdraw money from your own EPF account either. As an employee, you contribute 11% of your salary into your EPF account, and your employer tops it up with another 12%. This money is kept there until you reach the age of 55, at which point you can withdraw from Account 1. So, technically, it forces you to save and at the same time, you can’t access it until you retire.
EPF Account Structure
Before we dive into the new structure, let’s discuss the traditional structure. Previously, EPF had two accounts:
Account 1 (Retirement Savings): 70% contribution, locked until age 55.
Account 2 (Flexible Withdrawal): 30% contribution, for specific purposes like education or housing.
What Caused the Need for EPF Account 3?
When the COVID pandemic hit, many people were laid off, businesses were forced to close down, and people struggled financially. In order to curb the situation, the government allowed a one-off withdrawal from EPF to help those affected. Eventually, this one-off withdrawal happened multiple times to continue helping many who were financially struggling but it also increased the demand for flexibility in accessing EPF funds. According to an EPF survey, 83% of public consultation feedback preferred empowerment through flexible withdrawal. With that, EPF decided to introduce a new structure. With the new structure, an additional Account 3, known as Account Flexible, allows you to withdraw money as and when you need it. Following that, the initial accounts were renamed along with their allocations:
Account Persaraan: 75% contribution (increased from 70%).
Account Sejahtera: 15% contribution (previously Account 2).
Account Flexible: 10% contribution (new account, allows for any-time withdrawal).
Benefits and Concerns of New EPF Structure
This new structure empowers EPF members with the flexibility to plan their finances better. Members can access a certain amount of savings in their EPF anytime they need or want and turn it into an emergency savings fund. On the other hand, there are some who are concerned that this might lead to irresponsible withdrawals and leave people with inadequate retirement savings. EPF's strategy to mitigate this is to increase the allocation to Account Pasaran by 5%, safeguarding retirement savings while allowing flexible access to some funds.
EPF CEO, Mr. Ahmed Zulam, is confident that the impact of this new structure is manageable. They expect withdrawals to be between RM20 billion to RM30 billion this year, with a RM4 to RM5 billion annual withdrawal from then on.
Compared to 2020 and 2021, these numbers are lower, and EPF has managed funds well even with higher withdrawals in the past. Contributions are also looking good, with a 15% increase in 2023 to 97.56 billion ringgit and a projected net inflow of 50 billion ringgit. So, more money is coming in than going out, ensuring the stability of EPF funds.
There is also a misconception going around that Account Flexible has a lower dividend rate. This is not all true. All three EPF accounts receive the same dividend rate of 2.5%.
Should you withdraw from your Account Flexible?
Some might want to withdraw money to buy things, which is generally not advisable unless absolutely necessary. EPF is effective because it protects your money against impulsive spending. Many people lack self-discipline with finances, and EPF acts as a safety net for retirement.
However, if you still feel like withdrawing to invest elsewhere for better returns, the choice is yours. Just be cautious, as many retirees have lost their savings to scams promising better returns. EPF pays the same dividend rate for all three accounts, so the idea that Account Flexible has a lower rate is a misconception.
For more information about EPF, please visit KWSP’s official website. If you still need to withdraw money, you can make an initial transfer to Account Flexible between May 12th, 2024, and August 31st, 2024. After that, 10% is allocated monthly to this account.
The Bottom line
Overall, I think the new structure is beneficial as it provides flexibility while increasing retirement contributions in Account Pasaran. EPF has a strong track record, so I am not worried about its performance or dividends. What do you think about this new structure? Share your thoughts in the comments below. Check out my video on EPF Akaun 3 where I share another bigger issue that will affect Malaysians in the future.
Disclaimer: This information is for general knowledge only and does not constitute financial advice.
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