Economic experts have warned that any move to introduce a tiered dividend structure for Employees Provident Fund (EPF) savings will not sit well with members who earn high incomes, and may result in long-term repercussions to the fund itself.

In recent times, a few parties from politicians to analysts have proposed a tiered dividend structure for EPF members to solve the issue of low savings among many EPF members. The tiered structure will see a higher rate paid to those with lower balances and a lower rate to those with higher balances in their EPF accounts. This effectively translates to a higher effective dividend rate to lower-income earners with less savings in their EPF accounts, and a lower rate to higher-income earners.

According to the director of the Institute of Malaysian and International Studies at Universiti Kebangsaan Malaysia, Sufian Jusoh, such a move will be unfair to the high-wage earners, who should not be made to bear the burden of increasing the savings of the B40 and lower M40 groups. After all, it is the government’s responsibility to do so. He also said that this will lead to high-income earners withdrawing their EPF savings, which will then affect the EPF’s investments. To note, the top 0.3% of EPF members’ savings is equivalent to the bottom 65% of members in 2020 – which highlights the liquidity impact the EPF faces if tiered dividends are introduced.

Aside from that, Sufian also commented that the government should put an end to special EPF withdrawals, as future retirees will not have enough savings to last through their retirement. If allowed to deteriorate, the situation may eventually require the government to provide regular assistance to retirees in the future, turning the country into a welfare state. 

“This also means the government will be forced to increase taxes while salaries in Malaysia are still relatively low. When this happens, investors may shy away and I dread to think what will happen to the economy,” Sufian added. 

To date, the EPF has allowed four special Covid-19-related withdrawal facilities to assist its members who were struggling financially: i-Lestari and i-Sinar, which were both introduced in 2020, i-Citra in 2021, and the latest RM10,000 withdrawal facility, which was announced earlier this week.

Another expert – a former EPF economist who requested anonymity – also echoed Sufian’s views, saying that high-income contributors will look for better investment opportunities elsewhere if the tiered dividend structure is introduced. “If this happens, the result is a no-brainer actually,” he said, adding that EPF data shows that 10% of members have about RM356 billion in collective savings – which is equivalent to 40% of the fund. 

The economist also pointed out that in 2021, the EPF withdrawals had exceeded the contributions for the first time in 20 years. “The board also had to bring back RM20 billion of its investments abroad last year to help with its liquidity,” he added. 

Ultimately, both experts proposed that the EPF and authorities need to be more careful and creative in planning their strategies moving forward.

(Source: Free Malaysia Today)

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• EPF
• EPF dividend
• EPF Withdrawals
• Sufian Jusoh