BY: PROF. DR. CHONG WEI YING

As Malaysia edges closer to becoming an ageing society, concerns over the financial security of retirees are mounting. The growing trend of early withdrawals among Employees Provident Fund (EPF) members raises serious questions about the long-term sustainability of retirement funds. These premature withdrawals not only erode retirement savings but also risk prolonging working years and delaying retirement for many Malaysians.

The EPF, designed as a national savings scheme to support Malaysians in retirement, is facing a significant challenge. Studies show that a considerable number of EPF members aged 55 to 59 have savings balances below RM100,000—far short of the RM240,000 experts recommend for a modest retirement. What’s more alarming is the prevalence of withdrawals by members with less than RM25,000, leaving them even more vulnerable in their later years (Awang et. al, 2020).

EPF rules allow for pre-retirement withdrawals to meet essential needs such as housing, education, and healthcare. However, many members with low balances are withdrawing large sums, primarily for home purchases -, leaving little for future growth and retirement security. (Awang et. al, 2020).

Many Malaysians are drawing from Account 3(Flexible accountintroduced in 2024 as part of EPF’s restructuring—offers flexible withdrawals for emergencies like medical expenses and home repairs) to meet immediate financial challenges, such as debt repayment and essential living expenses. While this provides important liquidity, frequent withdrawals from this account raise concerns about the erosion of long-term financial security.

The Driving Forces Behind Early Withdrawals

In 2024 alone, EPF approved 3.04 million applications for Account 3 withdrawals, totaling RM5.52 billion as of May (The Star, 2024). The flexibility of Account 3 has seen many members withdraw their savings to meet short-term financial needs.

Several key factors drive these withdrawals:

  • Financial Emergencies: Unexpected medical bills, unemployment, and high levels of personal debt push Malaysians to withdraw retirement funds prematurely.
  • Low Financial Literacy: A lack of understanding about how much is required for retirement has led many to make premature withdrawals, jeopardising their future security.
  • Housing and Education Costs: EPF allows early withdrawals for home purchases and children’s education, with many members prioritising these needs over long-term savings.
  • Government Policies: Flexible withdrawal options, particularly during the pandemic (i-Lestari and i-Sinar), have made it easier for members to tap into their retirement savings. While these measures provided temporary relief, they risk depleting retirement reserves.
  • Cultural Pressures: Family obligations and the desire to retire early contribute to members withdrawing their savings prematurely, putting their long-term financial security at risk.

What Needs to Be Done: Government Intervention and Financial Literacy

To address the growing issue of early withdrawals from EPF accounts, immediate government intervention is essential. One crucial step is launching a national financial literacy campaign to educate Malaysians about the long-term impact of premature withdrawals, especially from Account 3. Many members may not fully understand how these withdrawals can affect their ability to retire comfortably. By raising awareness of the importance of financial planning, the government can encourage better saving habits and help individuals secure their financial futures.

Additionally, introducing incentive programmes—such as offering interest rate bonuses or other benefits for members who refrain from early withdrawals—can further discourage premature depletion of retirement funds. These initiatives would promote long-term financial security by motivating Malaysians to preserve their savings until retirement, ensuring that they have a stable financial foundation for their later years. This approach would not only safeguard individual futures but also relieve potential pressure on the country’s social security systems in the years to come.

By promoting better financial management, safeguarding retirement savings, and encouraging voluntary contributions to Account 3 without premature withdrawals, Malaysia can secure a more prosperous future for its ageing population. The findings underscore the need for urgent reforms to protect the financial well-being of future retirees, ensuring that they can retire with dignity and security.

**Associate Professor Dr Chong Wei Ying is a member of the Active Ageing Impact Lab at Taylor’s University