KUALA LUMPUR (March 23): CGS-CIMB Research said withdrawals under the special EPF scheme are expected to be milder compared to past programmes as most members are unlikely to have a sufficient amount left for a full withdrawal.

In an Economics Update on Wednesday, CGS-CIMB economist Nazmi Idrus said that in addition, the public has less need for financial support, with expectations of good investment returns in the future given the strong EPF performance in 2021.

Nazmi said the special EPF withdrawal was unexpected. Past measures coincided with lockdowns, while the current withdrawal is amidst an economic rebound.

He projected lower withdrawals of RM15 billion-RM20 billion due to limited available funds by members, but added this could still add 45 basis points (bps) to year-on-year (y-o-y) gross domestic product (GDP) growth.

“Long term, higher savings to rebuild buffers could affect future consumption. A worsening retirement crisis could see an increase in retirement age,” he said.

Nazmi said assuming RM20 billion in total withdrawals and a marginal propensity to consume of 0.35, the direct impact on consumption could be around RM7 billion, with the rest put towards paring debt or savings.

He said this means that private consumption could grow by an additional 78bps y-o-y in 2022.

“Meanwhile, the additional impact on GDP growth could be around +45bps, assuming all else constant,” he said.

Nazmi said that to rebuild savings, all subsequent EPF contributions will go into Account 1 until the amount withdrawn is replaced.

He said that further, the setback in achieving full basic savings might mean that the country may not be able to adequately prepare for the impending ‘silver tsunami’.

“As a result, the government may need to raise the retirement age to continue rebuilding members’ savings and reduce the cost of government support for the elderly.

“Failure to do so will see the government facing a higher debt-to-GDP ratio.

“Consequently, there is also risk of erosion of trust towards EPF as the lack of ring-fencing of funds against political influences may be seen as a weakness in the organisation, which may have further implications for the financial market,” he said.