Getting a clearer picture: An EPF staff attending to a customer at EPF Kwasa Damansara, Shah Alam. — FAIHAN GHANI/The Star
PETALING JAYA: The intergenerational wealth transfer scheme for Employees Provident Fund (EPF) savings, as proposed in Budget 2025, may be akin to the i-sayang scheme, and may not add value for contributors, warn experts.
During his announcement of Budget 2025 on Friday, Prime Minister Datuk Seri Anwar Ibrahim said the scheme would allow EPF members to transfer part of their retirement savings directly to the EPF accounts of close family members, ensuring financial security for future generations.
Under the existing i-sayang scheme, the husband (contributor) is allowed to transfer the 2% employee share contribution received from his employer to his wife’s (recipient) EPF account.
However, an expert on ageing said the wealth transfer scheme may chip away at the security and integrity of the retirement fund, while a lawyer stated that instead of such i-sayang-like schemes, there are many other ways for parents to use their EPF monies for their children.
Universiti Putra Malaysia’s Chai Sen Tyng, from the Malaysian Research Institute on Ageing, said the proposed intergenerational transfer scheme tends to liken EPF contributions to personal savings in a conventional bank.
“EPF’s existing i-sayang scheme has already proved that ‘a left hand to right hand’ transfer does not add value for contributors.
“Such a narrow kinship idea of wealth transfer provides net zero improvement financially, and will also add administrative hassle to EPF and its contributors.
“As Malaysia has no inheritance tax, what is the logic of intergenerational transfer, when the fund is supposed to be the money used to look after a person in his or her retirement years?
“If EPF savings can be moved to another person at will, even if to the closest family member, this seems like precisely the scenario the EPF was supposed to ring fence in the first place,” said Chai.
(An inheritance tax is a tax paid by a person who inherits the money or property of a person who has died.)
He said that wealth transfer is probably better regulated through estate planning and the use of wills within a proper legal framework.
“This may allow further leakages and goes against the idea of mandatory savings for retirement, and further complicates pension and social protection reforms down the road. EPF is an individual retirement account.
“We can only speculate why such a proposal was made, but like the lump-sum withdrawal at age 55, we are just painting more targets on the back of EPF contributors.
“I can imagine many scenarios where the elderly or older workers will be pressured to redirect their savings for purposes other than their own retirement income security.
“For high net-worth individuals, this could even be an attempt to circumvent some legal or tax constraints. It is high time for Malaysia to introduce a contribution ceiling for EPF contributors so that it stops disproportionately benefiting the rich and wealthy,” said Chai.
He warned that the ramifications will be huge, akin to the impact of the Flexible Account, or Account 3, which was activated in May.
It was reported that as of July 19, 3.4 million of the 13.1 million EPF members under the age of 55 had made withdrawals from Account 3 amounting to a whopping RM8.9bil.
“Increasingly, the pervasive view is that EPF savings is a sum of money that contributors have a right to during emergencies, including to meet housing, education, and medical needs.
“My personal fear is that with Account 3, we are entrenching the belief that contributor savings are like personal savings accounts in conventional banks when the truth is far from it. Without the EPF Act 1991, neither the employer nor the employee can be compelled to set aside the sum for retirement in the provident fund.
“It is the same argument about transferring wealth to adult children instead of using a will. Is this to bypass ‘faraid’ constraints? Is this the ‘hibah’ loophole within the EPF system?” questioned Chai.
Under EPF rules, “hibah” are savings of Muslim contributors which they gift to their next of kin while they are alive, whereas the savings left behind after a death are divided using the pre-drawn “faraid” system where each member of the family will receive a certain percentage.
“The proper reform EPF needs is the idea that everyone who works sets aside some earnings today to fund retirement living, for everyone else to do so in their cohort,” said Chai.
“We need a basic tier that gives everyone, whether they have worked or never worked, a small monthly pension – a solidarity fund that will benefit everyone, including housewives, the disabled, and anyone who reaches the age of 60 or 65.
“A second tier should be tied to occupational savings, a retirement pension reflective of your contribution to the pot. The last tier should be voluntary, like monies you set aside for private retirement schemes or any other mechanism. Excess wealth remains inheritable.
“EPF should focus on doing this for the middle and lower classes. The rich have plenty of financial means and mechanisms to maintain their lifestyles,” said Chai.
Meanwhile, syariah and civil lawyer Yuslinov Ahmad from Penang, who has handled many matrimonial and inheritance cases in her 30 years of practice, said unknown to many Muslims, they can include their EPF savings in a will.
“However, it can only apply to one-third of their wealth and to beneficiaries who are not listed under the faraid.
“With a settlement agreement using a trustee, unknown to many, Muslims can will out one-third from the wealth but only to those who are not a faraid beneficiary. This includes EPF savings.
“The rationale of the fund is to save for retirement. With the ease of transfers, it may create problems when Gen Z is getting money from the retirement funds of their parents.
“It would be better for the Gen Z to work rather than getting the money in their EPF accounts while their parents are still alive,” said Yuslinov.
She proposed that in cases of divorced parents who have to provide for child maintenance, the fund could allow for child maintenance payments to be taken from the account.
“Quite a number of divorced parents who have to provide for their growing children tend to say they do not have the money, when they actually have it in their EPF accounts.
“Rather than wait for the children to be adults and have EPF accounts before they transfer, such parents should be allowed to tap into their EPF funds prior to retirement to enable them to fund their children’s maintenance to their spouses with the guardianship,” said Yuslinov.
She said that such changes are needed in the EPF Act more than intergenerational wealth transfers as more people are divorced now than when the law was first enacted.
