Saidah Asilah Abdul Shukor, a financial adviser licensed by Bank Negara Malaysia, said the participating banks will profit from the interest rate on the loans at the expense of EPF members.
She said although the interest rate under the scheme will range from 4% to 5% – lower than the current market rate of 8% to 15% – EPF members must be aware that their retirement funds are intended for future use.
These members will enjoy a higher yearly dividend (5.35% for last year) if their savings are allowed to accumulate in their EPF account.
Saidah said using their EPF savings as collateral for loans will add liability to the members’ cash flow.
“If you don’t add liability, you can save and earn profits for future benefit,” she said.
She advised EPF members who need funds urgently to look for other means that do not “jeopardise” their retirement savings.
For example, if it is for business, they should look at loan assistance targeted to that purpose, and if it is for education, they should look for options that do not seriously affect their existing retirement savings.
For liquidity purposes, she said, they should audit their existing cash flow to plug any leakage that can prevent additional savings.
Financial adviser Kendrick Lee said using EPF savings to support loans can serve as a cheaper way of financing borrowings without compromising the yearly dividend returns.
However, he said members must ensure they are able to pay off the loan on reaching 50 or 55, depending on which of the two schemes they choose, or end up losing their retirement funds.
On Monday, EPF said it had finalised the mechanism as well as the terms and conditions for the use of Account 2 savings as support for loan applications.
It said the savings in Account 2 will serve as the basis for obtaining personal financing through an advance application for the “Age 50 or Age 55 Conditional Withdrawal” scheme.
The fund said the payment for the conditional withdrawal will only be made to the relevant bank when the EPF member reaches the age of 50 to 55, as set out under the EPF Act 1951.
The scheme will involve two phases, with the first beginning on April 7, and will remain open for one year. It is applicable for members aged 40 and above. The starting date for Phase 2, for those below 40, will be announced at a later date.