EPF’s flexible account will not prompt splurge spending — Kenanga Research
The introduction of the Employee Provident Fund’s (EPF) third flexible account will not likely prompt splurge spendings, analysts at Kenanga Investment Bank Bhd’s research arm (Kenanga Research) say.
To recap, the EPF announced that it will be restructuring its accounts for all members under age 55 from the previous two account system to a system with three accounts, which are Account 1 (Retirement Account), Account 2 (Wellbeing Account), and Account 3 (Flexible Account).
The restructuring will be effective on May 11. From May 11 until August 31, 2024, members will have a one-time option to transfer funds from their Wellbeing Account to Flexible account.
Those opting in will have their savings allocated in the following distribution; 75 per cent into their Retirement Account, 15 per cent into their Wellbeing Account and 10 per cent into their Flexible account. For those who do not opt in, their Flexible Accounts will start with zero balance.
Meanwhile, for members over the age of 55, their savings will be merged into a new account called ‘Account 55’ while any new contributions will be credit to ‘Senior Account’.
EPF chief executive officer Amad Zulqarnain Onn announced that the introduction of the new Flexible Account is not expected to affect EPF’s overall portfolio.
While initial dividends across all accounts will be uniform, future variation may occur as liquid assets typically yield lower interest rates and dividends.
In a sector update, Kenanga Research guided in the scenario where all EPF members chooses to opt in, an estimated RM57 billion could be transferred to the new Flexible account with about RM25 billion expected to be withdrawn in the first year, followed by annual withdrawals of RM4 billion to RM5 billion.
While this might seem like a large sum, the research arm points out that even in this most extreme-case scenario of an estimated RM25 billion withdrawals in the first year, the economic impact would still only be about half of that seen with the ‘Special Withdrawal’ in April 2022 where RM44.6 billion withdrawals occurred.
Looking at the situation on an individual level, transfers to the Flexible Account is expected to range between only RM1,000 to RM3,000 as the average EPF Savings at the end of 2023 were RM1,700 for B40 group and RM28,000 for the M40 group.
“Therefore, the launch of the Flexible Account is unlikely to significantly affect consumer discretionary sectors, including the automotive industry, which showed stable sales and backlog figures of 200,000 to 250,000 units during the special withdrawal period of April-May 2022.
“Overall, we are of the view that contributors will allocate funds from the Flexible Account prudently, with minimal expenditure on high-ticket items,” the research arm opined.