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EPF Account 1 Withdrawal (i-Sinar): The Pros and Cons

Updated 28 Dec 2020 – By Faiz Rahim & Nisya Aziz


You’ve heard the news -  Employees Provident Fund (EPF) has allowed its contributors to withdraw money up to RM60,000 from Account 1 via i-Sinar starting January 2021 - you can check via i-Account

SIDE NOTE: If you want to know what else you can do with your EPF monies, read: i-Sinar & 8 Other Things You Can Use Your EPF for

Anyway, coming back to the withdrawal, there are plenty of mixed reactions. We’re pretty sure you have also read them online.

Some are okay with it:

 

Some pulak aren’t okay with the eligibility rules:

 

Some feel that there shouldn't be a restriction for withdrawal in the first place:

 

Of course, the experts had their opinions on this matter as well:

 

Many of them feel that the EPF withdrawal should be the last resort. One of them is Desmond Chong Kok Fei, deputy president of the Malaysian Financial Planning Council. He shared that just like loan moratorium, the EPF withdrawal is just a temporary fix. 

“If it remains unresolved even after 6 months, what makes one think they can solve their income problem by withdrawing funds from Account 1?”

But, is it a bad thing? 

Now, with the current economic condition and global pandemic, some of us contributors are thinking of withdrawing money from Account 1. But, before you decide, do know it doesn’t come without a blowback - you got to assess it properly.


 

Here are the pros and cons of withdrawing the money from Account 1. 

The pros…

1. Instant money for you!

Did you know that in the first half of 2020, the unemployment rate increased to 4.3%? Yup, that’s 653.5 million people out of work due to the unstable economic and global pandemic. A lot of people are facing a sudden financial shock. If there’s no emergency fund, it’s going to be hard for them to maintain their day to day needs, financially. 



With the allowance of EPF Account 1 withdrawal, it could help lessen the burden. Although it’s not much, it can be used as a top-up for the basic needs expenses that are affected e.g. like rental, food and transportation. 

 

2. It’ll help boost the economy 

So, how is i-Sinar going to help this? Okay, so you know with the current situation like pay cut and retrenchment can affect consumers buying power. According to the father of Keynesian economics, John Maynard Keynes, consumer spending is the most important short-run determinant of economic performance and is a primary component of aggregate demand.



As many of you know, our country’s economy is currently on the road for recovery. With i-Sinar in place, it can further accelerate the recovery a little bit faster. People will spend to maintain their standard of living. Businesses’ activities will increase again due to the demand for goods and services. 

 

The cons…

1. You’ll earn fewer dividends.




As everyone knows, the main purpose of EPF is to help the contributors to save for retirement. Based on this news article, Khazanah Research Institute (KRI) senior research associate, Hawati Abdul Hamid shared:

“More than 80% of EPF contributors do not meet the minimum savings target of around RM240,000 by retirement age, and the bottom 20% of contributors average less than RM7,000 in savings.”

With the rising cost of living, that’s worrying - especially if that’s the only retirement fund they have. If you feel like you can relate to that statistic, then withdrawing your account 1 would mean losing out on the monies that you could’ve collected.

We’ll take Nizam as an example. He currently has RM20,000 in his EPF savings account. His monthly EPF contributions: 9% (new contribution rate in 2021) x RM1,680 = RM151.20. In a year, he’ll get RM1,814.40. Assuming a 5% dividend and his salary remains the same, his retirement savings will be this much in 3 years…

No. of years Current retirement savings Annual contribution Dividends earned Retirement savings after a year
1 RM20,000 RM1,814.40 RM1,090.72 RM22,905.12
2 RM22,905.12 RM1,814.40 RM1,235.98 RM25,995.50
3 RM25,995.50 RM1,814.40 RM1,390.50 RM29,200.40



However, if he decided to take out RM10,000, here’s how his retirement savings will look like:

No. of years Current retirement savings Annual contribution Dividends earned Retirement savings after a year
1 RM10,000 RM1,814.40 RM590.72 RM12,405.12
2 RM12,405.12 RM1,814.40 RM710.98 RM14,930.50
3 RM14,930.50 RM1,814.40 RM837.25 RM17,582.15
 

As you can see, if he didn’t make the withdrawal, Nizam’s EPF retirement savings could’ve had additional RM11,618.26. Even if he managed to pay it back, there would still be some amount of money that he would lose over time.

 

2. Not everyone can pay the advancement back to EPF 

Unlike i-Lestari, i-Sinar works as an advancement instead of a withdrawal facility. In a way, it’s like taking out money from your savings - eventually, you’ll be putting it back.

So, how do you pay it back? Before this, 70% of your contribution will go to your Account 1 and another 30% to Account 2. If you were to opt for i-Sinar, 100% of your EPF monies will go to Account 1 until the advancement is paid back fully. Once that’s sorted, the contributions will go back to normal.



Unfortunately, let’s be real - it's unknown whether the contributors that got retrenched can get work and pay the advancement. The same goes for contributors that haven’t been active members. 

Let’s take Mei Yi, a housewife who voluntarily made a self contribution to EPF as an example. Perhaps due to financial constraints, she hasn’t been an active contributor and only has around RM4,500 in her EPF account. Now she decided to make a withdrawal to make up for any expenses shortfall - all is good.

With her current circumstance, how is she going to pay it back? Same goes if you’re out of a job and not able to secure any anytime soon. So far, we’ve not seen any statement from EPF about this.




So, how now? We hope you use the EPF money wisely and not for vanity...



Yes, we get it - it's your money. You can use it however you like. Let us be reminded that the idea of this withdrawal facility is to help people who are financially affected. So, if you’re still capable, just wait when you've reached retirement age.

So, tell us, what do you think about the EPF Account 1 withdrawal? Does it have more pros or cons? Share it with us in the FB comment section here. Don’t forget to share this article with your family and friends as well!

To those that qualify, happy applying!

 

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