Every withdrawal reduces amount compounding for retirement: Fomca
PETALING JAYA: The flexibility offered under the Employees Provident Fund (EPF) Account Three (Akaun Fleksibel) may ease short-term financial pressures, but repeated withdrawals could undermine Malaysians’ retirement security, said the Federation of Malaysian Consumers Associations (Fomca).
Its CEO Saravanan Thambirajah said many contributors understand that Account Three is meant for urgent needs, but frequent withdrawals could erode retirement savings.
“The word ‘flexibility’ can easily be interpreted as ‘it is safe to use’. However, every withdrawal reduces the amount that can continue compounding for retirement,” he said, adding that EPF consistently reminds members to use the account prudently.
Official figures tabled in Parliament show that as of June 30, 2025, about 4.63 million members had withdrawn RM14.79 billion from Account Three since its introduction.
“This indicates that a significant number of Malaysians are using this facility as part of short-term financial management.”
Survey findings suggest that most withdrawals are defensive, meaning they are meant for debt repayment and daily expenses rather than discretionary spending.
“The dominant driver is financial strain, not indulgence.”
Saravanan said financial literacy campaigns alone may not suffice.
“Real-world cost-of-living pressures could override financial education. High utilisation of Account Three withdrawals shows that education must be paired with clearer tools,” he said, suggesting contributors be shown projections of how withdrawals today could shrink future retirement savings.
He said to balance festive or short-term spending with long-term security, contributors should treat EPF funds, especially retirement portions, as protected assets.
“The account should be viewed as a last-resort safety valve, not a spending supplement.”
He recommended distinguishing genuine needs from wants, considering alternatives, such as tighter budgeting, and replacing withdrawn funds when possible.
Saravanan added that lower-income earners, workers with irregular incomes and young contributors are particularly vulnerable as smaller balances and underestimating compounding could significantly affect long-term outcomes.
“With large-scale withdrawals already reported, financially fragile households could be reducing their retirement buffer early in their working lives.”
He also called on policymakers to complement education with targeted savings incentives, stronger wage policies and enhanced social protection.
“Flexibility could provide temporary relief, but structural solutions must come from policy intervention,” he said, advocating affordable microcredit, targeted subsidies and emergency assistance schemes to reduce reliance on retirement savings during hardship.
“Retirement funds must remain a protected pillar of long-term security. Public policy should focus on reducing the circumstances that push people to draw down these savings early.”
