Economists pan use of EPF savings as loan collateral

Economists have expressed reservations about the recent proposal by Prime Minister Anwar Ibrahim to let Employees Provident Fund (EPF) members use their savings as collateral for bank loans, questioning its viability as a solution to the present cost-of-living situation.  

Adilah Zafirah of think tank Iris Institute said studies had shown links between an increase in household debt and lower output growth, higher unemployment, and a greater probability of future banking crises. 

"The government should work out a better solution and not just give painkillers to temporarily relieve the pain," she said. 

Anwar had proposed the scheme in the face of mounting pressure for targeted withdrawals from the retirement fund.

He said the facility would only be for those in desperate need of money, adding that this was the best way to help contributors in the present circumstances.

"I will ensure that EPF gives space to hard-pressed contributors with savings to borrow from banks, by using their EPF money as collateral for the loans," he said in the Dewan Rakyat on March 9.

Economist Ahmed Razman Abdul Latiff said encouraging people to take up loans would lead to an increase in household debt, which he added had already edged 90% from the GDP and was among the highest rates in the region. 

Speaking to MalaysiaNow, he said it would also require an amendment to the EPF Act, which does not currently allow the use of contributions as collateral. 

Razman, of the Putra Business School, also urged the government to provide an alternative financing scheme that does not involve interest. 

The government had allowed several rounds of EPF withdrawals to help cushion the economic impact of Covid-19 at the height of the pandemic. 

EPF CEO Amir Hamzah Azizan recently said that these withdrawals had reduced savings levels by up to 70% for Bumiputera members. 

Former banker Muhammad Zahid Abdul Aziz was of the opinion that EPF savings for retirement are only applicable for those in the T20 or top 20 income bracket. 

Zahid, formerly with Bank Islam, also said that some contributors had seen their retirement funds drained in a matter of years. 

"Even if the funds were not withdrawn, the savings would have been swallowed up by the sky-rocketing inflation," he added. 

He gave the example of an EPF member with RM15,500 on retirement, saying such individuals would get only RM69 per month to spend post-retirement at the current dividend rate of 5.35% per annum.

An individual with RM150,000 would have RM668 per month, and one with RM300,000 only RM1,337 per month, he added. 
 
"What we hear about the 4% inflation rate is the difference in a year," he said. 

"The base price from 2003 to 2023, for example, can reach 300% to 400%." 

Adding that those facing financial difficulties would have no other way to cover their expenses, he urged the government to allow contributors to withdraw their funds if it had no other way to help them. 

"But certainly there are many other ways aside from asking them to take more loans pledged against their EPF savings," he said. 

The EPF said in December 2021 that the country’s social protection had been pushed to the limit after the series of withdrawals due to the Covid-19 crisis.

It said the schemes such as i-Lestari, i-Sinar and i-Citra had led to the outflow of RM101 billion involving 6.1 million members, leaving them with less than RM10,000 in their accounts. Of these, 3.6 million had less than RM1,000.

It also said that a majority of those who made the emergency withdrawals were Bumiputeras.

"As a result, 4.4 million or 54% of Bumiputera members now have less than RM10,000, and two million or 25% have less than RM1,000.

"This is very worrying as it reflects an increase in the percentage of members who cannot reach the EPF Basic Savings quantum of RM240,000, which is the minimum amount required by members upon reaching 55 years of age," it said.