This article first appeared in The Edge Malaysia Weekly on August 16, 2021 - August 22, 2021

THE Employees Provident Fund may see a rare net withdrawal for the whole of 2021, owing to Covid-19-related special withdrawals that already total RM84 billion, based on the approvals given to date this year. This is more than the RM78.4 billion in gross contributions received by the provident fund for the whole of 2020, a back-of-the-envelope calculation shows.

Three weeks after applications for the latest Covid-19-related withdrawal scheme, i-Citra, started on July 12, some 4.62 million EPF members had applied to withdraw a total of RM19.3 billion in retirement savings. Under the programme, 12.4 million eligible members or 98% of 12.6 million members below the age of 55 can withdraw up to RM1,000 a month over five months (RM5,000 in total), with payments credited starting from August.

The RM84 billion in total approvals could rise to RM95 billion by year-end, given that the total withdrawal under i-Citra is estimated to reach RM30 billion by the time applications close on Sept 30. Members only need to leave a balance of RM100 with EPF.

Some RM58.8 billion in withdrawals have already been approved under the i-Sinar Account 1 scheme this year. About RM6 billion have also been taken out this year by members from their Account 2 via the i-Lestari programme, which saw a total of RM20.8 billion withdrawn between April 2020 and March this year.

Inflows or (gross) contributions are estimated to be RM2.2 billion lower since the imposition of a two-percentage-point reduction in employees’ statutory EPF contribution to 9% for this year. This is sizeable, though lower than the RM5 billion EPF said was released back to members between April and December last year when the statutory contribution rate for employees was lowered to 7% from 11%.

Over the past 15 years, EPF has usually seen a net inflow, with contributions received exceeding withdrawals by between RM9.7 billion and RM31.1 billion each year, official data shows.

Last year, net inflow or contribution was RM20.1 billion with (gross) contribution at RM78.4 billion versus RM58.3 billion in withdrawals (RM44.8 billion in 2019). The i-Lestari scheme contributed about RM14.8 billion of withdrawals last year, The Edge’s compilation of data from Laksana reports show.

Even if a rare net withdrawal happens this year, EPF is set to resume its growth path next year, provided that the economy and job market recovers strongly from the Covid-19 pandemic.

Ironically, as reported in our Cover Story in Issue 1374 (June 14, 2021), our back-of-the-envelope calculation shows that these special withdrawals may also mean that the amount EPF needs to pay for every 1% of dividend to members may not grow as fast as it otherwise would have in 2021.

Without commenting on dividend prospects for 2021, EPF CEO Datuk Seri Amir Hamzah Azizan told The Edge in June that based on the size of assets under management, “the threshold [to pay the same amount of dividend this year] will probably be about the same as last year”. Under “normal” circumstances, the amount EPF needs to pay for 1% dividend would have risen close to RM10 billion in 2021 from RM9.2 billion in 2020 and RM8.5 billion in 2019, according to The Edge’s estimates based on the fund’s growth trajectory in the last 15 years.

EPF chief strategy officer Nurhisham Hussein, who told reporters on Aug 6 that the fund expects an outflow of RM117 billion from Covid-19-related programmes in 2020 and 2021, also said the withdrawals were unlikely to negatively hit returns to members. “The withdrawals affect both sides — the amount we need to generate in return is also reduced, so it balances out quite well. The only thing is that we need to carry a bit more cash, but that’s marginal when compared to the entire returns of the portfolio,” Nurhisham was reported to have said at an online briefing.

EPF’s gross investment income for 1Q2021 of RM19.29 billion (RM19.24 billion net) is the highest quarterly showing in at least 17 quarters while the lowest over the same period was RM9.7 billion in 1Q2019. The provident fund usually releases its second-quarter performance by the third week of September or as early as late August.

For pandemic-hit 2020, EPF declared RM47.6 billion in total dividends, paying a dividend of 5.2% for conventional savings and 4.9% for shariah savings. Total dividends were more than the RM45.8 billion declared in 2019, paying 5.45% for conventional savings and 5% for shariah savings.

The greater policy concern will be on closing the retirement savings gap widened by Covid-19-related withdrawals.

Indications are that at least 393,100 more private-sector wage earners may have emptied their retirement nest eggs after withdrawing less than RM1,000 from their EPF account this month under the i-Citra scheme. They applied to withdraw a total of RM162.5 million or about RM413 per person on average, our back-of-the-envelope calculation shows.

By September, the second month of payments for i-Citra, some 231,208 EPF members could share that same fate as the 393,100. The 231,208 had collectively applied for just over RM331 million in total or an average of RM1,432 each — which means each person would get the maximum of RM1,000 in August and the balance in September.

Slides shared by EPF show that 966,714 or 21% of the 4.62 million applications for i-Citra as at Aug 4 had applied to withdraw less than RM4,000 each until year end, accounting for only 7.3% or RM1.4 billion of the RM19.26 billion in withdrawals applied for under the scheme.

Put another way, four-fifths of the applicants had between RM4,001 and RM5,000 in savings to withdraw from (average: RM4,884), even though not all of them had the maximum RM5,000 saved up (see Table 2).

According to data shared by EPF, as at Aug 4, some 62% who had applied for i-Citra withdrawals said the money would be used to cover everyday essential expenses. Other purposes of the withdrawals included settling outstanding debt (16%), assisting affected family members (8%) and increasing emergency funds (6%). In other words, the majority of the members likely did not have much choice but to tap their retirement savings, unlike the minority who took out money to seek higher investment returns elsewhere.

Nurhisham did not specifically say on Aug 6 how many EPF members had emptied their Account 1 or used up most of their retirement savings after making withdrawals under i-Citra. He had previously told The Edge that 2.19 million members had less than RM1,000 saved with EPF while 4.56 million members had less than RM5,000 left with the provident fund. Some of them may well have just started working and still have time to save up.

Yet, some form of policy intervention would likely be required to help more private-sector wage earners replenish savings that have been used prematurely in order to have a better chance of surviving in their old age. To borrow Amir’s words in his interview with The Edge, many members have “used their emergency funds” and “quite a number” of EPF members have reduced the amount of savings to “levels that they cannot guarantee their retirement”. Even before the i-Citra withdrawals, 6.3 million of its 15 million members had less than RM10,000 in their Account 1 and 9.3 million people had less than RM10,000 in Account 2 — a far cry from the RM240,000 minimum savings target (RM1,000 a month for 20 years) that EPF says all members should have by age 55. The wider the gap, the greater the need for fiscal space to cast a wider social safety net.

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