EPF’s Account 3 will go live on May 11.

Everyone below the age of 55 will have their funds restructured to the 75/15/10 ratio.

• How will it impact your retirement?

• Could this be the go-to place to store your emergency savings?

Along with financial experts Hann and Sani, we discussed the pros and cons of this move, plus tips on how to grow your retirement savings.

If you missed the insightful session on Sunday, listen to the full replay on Spotify.

Scroll down for a written summary of the session.

Quick Facts

i) On 25 April, EPF announced Account 3, which is a new Account that will receive 10% of your monthly contributions.

This account will allow members to withdraw the balance any time, and EPF said this was to replace targeted withdrawals.

Old structure:

• 70% Account 1 (cannot be withdrawn until 55).

• 30% Account 2 (can be withdrawn early to pay for education, housing loan, and healthcare).

New structure:

• 75% Account 1.

• 15% Account 2.

• 10% Account 3 (can be withdrawn any time).

ii) EPF has also announced that the dividends for Account 3 will be the same as Acc 1 and 2.

This is huge.

ASB & ASM averaged 4.93% pa and 4.79% pa for the past 6 years.

Meanwhile, EPF's conventional and Shariah savings averaged 5.63% pa and 5.27% pa.

iii) You cannot opt out from Account 3. However, there is an option to transfer part of your funds from Acc 2 to Acc 3.

If your balance in Account 2 is more than RM3,000, you can choose to transfer 1/3rd of it to Account 3, and 1/6th of it will be transferred to Account 1.

If your balance in Account 2 is less than RM3,000, you can only transfer up to RM1,000 to Account 3, but no balance from Account 2 will be transferred to Account 1.

Q1: What are your thoughts on Account 3? Yay or Nay?

Sani: EPF has lost its purpose in providing members a comfortable retirement.

Citizens, when given the choice to withdraw 10% of their money any time, will most certainly do so without thinking twice.

Just have a look at what happened when the government opened four EPF withdrawals during the pandemic:

The old structure (70/30) already has loopholes for people to withdraw early (ie. housing loan, education, etc.).

This new implementation will introduce more leakages to the system, which will further sacrifice the future welfare of citizens.

Those who are well off have no cause to celebrate either, as the government will likely increase taxes on the wealthy in order to fund the lifestyle of those who have depleted their retirement savings.

Hann: Perhaps a positive thing to look at Account 3 is that there is slightly more money locked away for retirement.

EPF has “sneakily” increased the amount in Account 1 from 70% to 75%, which means that citizens now have a little more savings tucked away for their future.

Q2: How will voluntary contributions be distributed?

Hann: Voluntary contributions are assumed to hold the 75/15/10 ratio. There is no motive for EPF to change it in any way, since the dividends for all three accounts are the same.

That said, it could still be a good choice for you to build and store part of your emergency savings.

With the option to transfer 1/3rd of your balance from Account 2 to Account 3, you can “opt in” and treat it as your emergency fund, which will take 10% of your monthly contributions.

If you decide to voluntarily contribute say RM3,000 to EPF, you’ll have RM300 that you can withdraw any time.

Voluntary contributions are also eligible for tax reliefs (assuming EPF continues this for YA2024), so it’s a win-win.

Q3: Will Account 3 have any impacts on EPF’s future returns?

Hann and Sani: Yes, but the impacts will be minimal.

In the short-term, it will likely lead to a 0.10-0.20% decrease in the total dividends declared by EPF, since now they have to keep 10% of their funds liquid.

However, over the long-term, the impact of Account 3 will be practically negligeable.

Q4: How will Account 3 impact the economy and inflation?

Sani: EPF CEO stated that RM57 billion will be released if everyone opted to withdraw the money from Account 3.

In the unlikely event that everyone does so and ends up spending it on the economy, we could see a boost in our GDP numbers and probably inflation.

The four withdrawals approved by the government during the pandemic did have an impact on prices and Malaysia’s GDP, so we do expect a similar outcome for Account 3.

Hann: There will also be a long-term impact on the property market. Previously we had 30% of EPF’s money going into the property markets, but now that percentage has been reduced by half (15%).

Q5: Should I withdraw from Account 3 to invest elsewhere?

Hann: You have to weigh the risks versus rewards.

Currently, EPF’s risk-free rate is 5.50%.

If you decide to withdraw 10% of your EPF money to invest in, say, a moderate risk fund that returns 5-6% per year, then it’s not really a wise decision, because you’re taking unnecessary risk for a bit of upside.

However, if you withdraw the money to invest in assets that generate much higher returns compared to the 5.50% benchmark, then it could be a good option to maximize your returns.

Remember, an asset with higher risk does not always mean higher returns. There are no guarantees.

Q6: How can I increase my retirement savings?

Sani: Start by sorting out your savings and expenses first.

Savings = Income - Expenses

If your bank account is always zero (or negative) by the end of the month, then you need to figure out ways to either cut down your expenses or increase your income.

Another way to increase your savings is to pay yourself during the start of the month rather than saving what’s left at the end.

When your salary comes in, allocate a percentage (10-20%) for your future and also save whatever that’s left during the end of the month.

Hann: Use the progressive wage model on yourself. Learn how to be better at what you do to become indispensable to your employer.

Live slightly below your means. If you’re earning RM2,600 and live like someone who earns RM2,400, that’s RM200 saved per month, which will go a long way for your financial freedom.

This is certainly not easy, but remember, someone else is living with this salary (RM2,400) and are still making ends meet, so how did they do it?

This written summary does not fully encapsulate the ideas shared by the speakers during the session.

Be sure to listen to the full replay!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice. The opinions of this newsletter are solely that of the publisher.

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