EPF Loan: More Joy or More Suffering?

Lew Guan Xi

Starting from April 7, 2023, Employees Provident Fund (EPF) members who fulfill certain conditions were allowed to apply for a loan of up to RM5,0000 from banks, with lower interest rates compared to other loan schemes. It seems the government has given in to the pressure from various groups, including the opposition, to open another round of EPF special withdrawal to help members in dire need of money. As helpful as it sounds, this loan scheme would lead to more long-term problems while leaving the urgent short-term ones unresolved.

The most fundamental aspect of such a scheme is that those who apply for it normally do not have enough money in their pockets; therefore, they need immediate financial assistance to address their short-term needs. Hence, most applicants may be desperate and fail to consider what would happen five to ten years down the line.

A condition that most supporters of this scheme may miss is that the loan applicants must pay back the loan before they reach the age of 55. If they are unable to pay back by then, the remaining money inside their EPF account will be directed to fill up the hole.

Given the dire situation the applicants are facing, it is likely they will not be able to settle the loan by the age of 55 unless the economy miraculously undergoes a boom leading to a drastic increase in the applicants’ income. When they are unable to pay back, their EPF account may be left with minimal or no money at all, forcing them to work extra years or live in poverty post-retirement.

Prime Minister Datuk Seri Anwar Ibrahim, via a parliamentary-written reply dated April 11, stated that 81 per cent of EPF contributors will live under the poverty line after retirement, strongly indicating insufficient savings in most accounts. Not only could the loan scheme not fully address the applicants’ present needs, it may also contribute to more resource wastage by the government, contradicting the current administration’s principle of spending less.

Hence, this loan scheme remains a populist strategy and a blind appeal to those who advocate for another round of EPF withdrawal and a surrender towards the mounting pressures and threats from the opposition to maintain the so-called “political stability”. However, the government must understand that it is the opposition’s job to raise questions against it constantly; therefore, “the opposition being quiet” should not be the benchmark for measuring stability.

EPF withdrawal is not a good fiscal measure to help those in need in the first place. Looking back at the four special withdrawal schemes introduced by previous administrations, they lack clear-cut conditions, target groups, or regulations.

Many members withdrew their money to invest in gold rather than to put food on the table as claimed by previous governments. Though investing is also a channel for passive income, it defeats the purpose of EPF “special” withdrawal. The schemes are aimed at helping those in dire need of assistance due to the economic downturn brought by the pandemic, and investment is certainly not a “dire need”.

In Budget 2023, Anwar, who is also the finance minister, announced a few extra incentives for EPF contributors, such as tax relief and an increase in the contribution gap. These are all pragmatic measures to encourage EPF members to contribute more to the country’s largest pension scheme to cover back the colossal hole left by four rounds of special withdrawal.

The government should explore other fiscal policies to help those currently in dire need of assistance. The funds in EPF should not be touched anymore as they cannot fully address the present and would leave a long-term threat. The future of Malaysian employees should not be further compromised to satisfy the present.

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