Early Withdrawal Practice of EPF Savings Risks Jeopardising People’s Retirement

KUALA LUMPUR: The practice of early withdrawal from the Employees Provident Fund (EPF) savings exposes more Malaysians to the risk of insufficient retirement savings and income uncertainty in old age.

According to the OECD Economic Surveys: Malaysia 2026 report, the existing contribution‑based pension system faces significant sustainability challenges because only nearly 40 percent of the working‑age population contribute to the scheme.

According to the report, early withdrawals from EPF that are permitted starting at age 55, together with the low statutory retirement age, reduce the period of retirement savings accumulation.

That situation, it said, causes many individuals to be exposed to the risk of outliving their expectations as well as insufficient retirement income as they grow older.

“A shorter contribution period and earlier withdrawal of savings undermine the system’s ability to provide adequate retirement protection as life expectancy continues to increase,” it said.

Accordingly, the OECD recommends that the retirement age be raised gradually in line with demographic changes so that it is closer to the practice of regional countries.

At the same time, it also recommends that the rules allowing lump‑sum withdrawals before retirement be tightened to ensure that savings remain used for retirement purposes.

As a complementary measure, the OECD suggests that the government encourage additional voluntary contributions and increase the level of financial literacy to encourage people to work longer and make better retirement planning.

The report also shows that pension coverage in Malaysia remains low compared to several peer countries, with the coverage of the social protection system for the elderly remaining among the lowest in the group of countries compared.

The OECD said that besides the issue of the contribution scheme, non‑contribution‑based pension coverage for vulnerable groups also remains narrow.

Accordingly, the body recommends that means‑tested social pension coverage be expanded to all elderly people who do not receive pensions from other sources, taking into account the country’s fiscal sustainability.

The OECD also reiterated its recommendation for Malaysia to further limit the scope for early withdrawals from the EPF retirement fund.

In addition, it also recommends that the withdrawal age and retirement age be raised to 65 years to strengthen the adequacy of retirement income in the long term.

The OECD also warned that long‑term fiscal pressures are expected to increase due to population ageing, thus making pension system reforms more important.

According to it, the country’s current social safety net remains limited, with less than 20 percent of the elderly receiving any form of social benefits, thus indicating the need to expand coverage to those who do not have sufficient retirement income sources.

Berita Harian