KUALA LUMPUR: Economists believe it is highly likely that a lower dividend rate will be assigned to the Employees Provident Fund's (EPF) planned flexible account or Account 3 when it comes into effect next year.
Less than 10 per cent of the total sum of contribution also should be allocated to the flexible account which allows for withdrawals.
Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid told Business Times, given the expected short tenure of the money kept in Account 3, it would seem likely that the it would command lower returns than the other other accounts which are not as easily withdrawn from.
"Ideally, it should command lower returns I supposed. "My sense is that the EPF has recognised the plight of our society in dealing with the economic shocks and the rise in cost of living. "The withdrawal should serve as a stop gap measures for the particular members as the last resort when faced with financial calamities," he said.
Afzanizam added that the matter is something that warrants further elaboration by the EPF.
Meanwhile, Malaysia University of Science and Technology economist Dr Geoffrey Williams said EPF should offer a good rate of return for Account 3 to make it attractive.
He believes that a flexible account is pointless without dividends.
According to him, without dividends, the account is equivalent to a regular current account or simply holding cash.
As such, Williams emphasised the need for dividends but also questions whether the dividend rates will be consistent across all three accounts or if they will be higher for Account 1 and Account 2.
"The Account 3 is a good idea to help people manage withdrawals without depleting their main retirement savings. "However, no more than 10 per cent of total savings should go to Account 3," he opined. Nonetheless, Williams said the implementation of a flexible account should improve members' financial planning, but it may require changes to Accounts 1 and 2 to prevent withdrawals from those accounts.
Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said that EPF should treat Account 3 similarly to the treatment given to the amount allocated to Account 2.
He believes that the plan by EPF to introduce EPF Account 3 is probably to cater to the needs of those depositors who have contributed more than RM10,000 to their accounts, and not those who have the minimum contribution.
When asked how much should go to Account 3, Ahmed Razman said it depends on how much total contribution the member has, so it could be tiered on percentage basis depends on the total contribution.
"EPF Account 3 will act as the emergency account which will be the last resort to the member who faced unanticipated cash problem," he added.
An EPF spokesperson when contacted on the proposed dividends to be accorded to Account 3, said it was too early to tell.
"Unfortunately, it's too early for us to comment on this as the implementation will require approval at Parliament level. "We will announce it once approved," an EPF spokesperson said.
The EPF flexible account is expected to be implemented in April next year. Deputy Finance Minister I Datuk Seri Ahmad Maslan mentioned that the government is currently reviewing the account details, with input from relevant agencies already taken into consideration.
He noted that the EPF will announce its dividend in February and more details on the flexible account will also be announced.
Ahmad Maslan said currently, relevant organisations have shared their perspectives on the flexible account, and the public is encouraged to communicate their thoughts to the Finance Ministry and EPF.
Previously, EPF had said that the proposed Account 3 also aims to attract the interest of those in the informal sector to make contributions to EPF.
On the savings rate allocated for Account 3, the fund noted that it may involve between five per cent and 10 per cent.
With the flexible Account 3, the contribution percentage for Account 1 will also be increased and members will have the option to transfer savings funds from Account 3 to Account 1 and Account 2.