Malaysia’s plan for bank loans to be granted against retirement savings draws ire

Netizens had in March slammed the initial bank loan idea announced by Datuk Seri Anwar, who is also Finance Minister, saying they were unhappy that their savings needed to be used as collateral for loans.

Hazlin Hassan

Hazlin Hassan

The Straits Times


More than half of EPF members under the age of 55 have less than $3,000 in their account as at end-2022. PHOTO: ST FILE

April 4, 2023

KUALA LUMPUR – Malaysia’s national pension fund’s plan to allow its members to take out low-interest bank loans against their retirement savings has drawn flak from the opposition, who say financially strapped members should instead be allowed to withdraw their savings directly.

Opposition MPs staged a walkout from Parliament on Monday in protest after their motion to debate emergency Employees Provident Fund (EPF) withdrawals was rejected.

Perikatan Nasional (PN) MP Wan Ahmad Fayhsal Kamal said he was informed that his emergency motion was rejected as the Finance Minister and his deputy have already explained the matter.

“However, there are still many complaints and grouses from the people, and they are still unhappy with the response by the minister and deputy minister,” he said in Parliament.

Fellow PN MP Wan Saiful Wan Jan accused the government of backtracking on its previous stance, posting on Facebook a news article in March last year quoting Prime Minister Anwar Ibrahim, who was then opposition leader, as saying that a further round of EPF withdrawals should be allowed to help Malaysians who were struggling financially.

Malaysian media reported that taxi driver Noorazlan Ismail, 48, walked more than 300km from Skudai, Johor to the National Palace in capital Kuala Lumpur, to push the government to allow for a fresh withdrawal.

Netizens had in March slammed the initial bank loan idea announced by Datuk Seri Anwar, who is also Finance Minister, saying they were unhappy that their savings needed to be used as collateral for loans.

The EPF is a statutory retirement fund that helps private sector workers save a portion of their salary, similar to Singapore’s Central Provident Fund.

On Monday, the EPF said that a minimum RM3,000 (S$905) of savings in contributors’ Account 2 can be used to obtain personal financing of up to RM50,000. The outstanding loan amount can be settled from the EPF account when the contributor reaches the age of 50 to 55 and is allowed to withdraw his retirement savings.

This facility will be implemented in two phases, the first of which will begin on April 7 and remain open for one year. Eligible members who are 40 years of age or older may apply.

Phase 2, for members under 40, has yet to be announced.

“This facility is targeted towards EPF members who have savings in Account 2, and are supported with a reasonable income to ensure they can afford the financing and repay it without compromising their retirement income adequacy and security. It offers a practical solution for EPF members who are facing temporary liquidity issues by providing cash flow through personal financing but with minimal impact to their retirement savings,” the EPF said in a statement.

Savings will remain intact in Account 2 and continue to receive an annual dividend, which was 6.1 per cent in 2021 and 5.35 per cent in 2022. This exceeds the interest rate of 4 to 5 per cent per annum for the bank loan under the EPF plan.

The issue of EPF withdrawals has been a political hot potato since the Covid-19 pandemic, during which Malaysians were allowed to withdraw funds from their accounts to help them weather the economic downturn. Economists, however, say it is not viable for members to continue withdrawing from their retirement funds, which are dwindling.

Official EPF data showed that 51.5 per cent or a total of 6.67 million of its members under the age of 55 have “extremely low” savings of less than RM10,000 as at end-2022. The EPF considers a sum of RM240,000 as adequate for a poverty-level pension by the time its members retire.

Contributors were allowed to withdraw their savings at least four times during the pandemic, resulting in a total of RM145 billion being released from the fund.

Members who withdrew their savings during the pandemic were largely made up of Bumiputera – comprising Malays and indigenous tribes – at 5.1 million or 76 per cent. The median savings level for Bumiputera also decreased from RM6,600 at the end of 2021 to RM4,700 in 2022.

Less than half the labour force is covered by EPF. Another 10 per cent or so are in the public sector – and covered by a civil service pension plan – while about four in 10 are informal workers with no mandated retirement plans.

Economist Nungsari Ahmad Radhi told The Straits Times that there are Malaysians who are really struggling to make ends meet, but they will not be helped by EPF withdrawals. “They are not people with money in EPF. Some may not even have an EPF account.

“This proposal to have more EPF withdrawals – after some RM145 billion has been taken out – is just irresponsible, made by irresponsible people. It won’t solve the problems of those in need of assistance, and will make the situation worse for those who take more money out from their retirement.”

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