Malaysia’s EPF Withdrawals Set to Boost Economy, but Experts Urge Caution

Malaysia’s Employees Provident Fund (EPF), known locally as Kumpulan Wang Simpanan Pekerja (KWSP), is poised to inject a significant boost into the national economy with projected withdrawals of RM5 billion from its Akaun Fleksibel (Account 3) in 2025. Economists are optimistic about the potential uplift to consumer spending and gross domestic product (GDP), following the EPF’s announcement of a 6.3% dividend rate for 2024—its highest since 2017. However, they caution against over-reliance on such withdrawals as a primary driver of economic growth, highlighting the need for sustainable, supply-side strategies.

The EPF, a cornerstone of Malaysia’s retirement savings system, declared a total dividend payout of RM73.24 billion for 2024, split between RM63.05 billion for conventional accounts and RM10.19 billion for syariah accounts. With Akaun Fleksibel allowing greater flexibility for withdrawals, approximately 10% of the dividend—equating to RM7.32 billion—could translate into consumer spending if fully withdrawn and spent, according to economist Geoffrey Williams, founder of Williams Business Consultancy Sdn Bhd. “This could add between 1% and 1.2% to GDP due to the multiplier effect,” he noted, though he stressed this represents a “demand-push” increase rather than genuine productivity growth.

A Double-Edged Economic Boost

Private consumption already accounts for 61% of Malaysia’s GDP, with a relatively high marginal propensity to consume (MPC) of 0.60, as explained by Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia Bhd. This means that for every ringgit withdrawn and spent from EPF accounts, a significant portion is likely to circulate through the economy. “If EPF members spend their Account 3 withdrawals, it will be a boost to the GDP,” Afzanizam said. However, he warned that such a strategy should not be the cornerstone of economic policy. “Certainly, we should not rely on withdrawals as the primary tool to grow the economy.”

Data from the EPF offers some reassurance against fears of reckless spending. According to Afzanizam, 70% of EPF members have historically opted to retain their savings in Akaun Fleksibel, with only 30% making withdrawals for various purposes. This suggests a cautious approach among contributors, many of whom appear to weigh the opportunity cost of spending against the benefits of allowing their savings to grow with the fund’s consistently high dividends, which have remained above Malaysia’s long-term inflation rate of 2.5%.

The compounding effect of reinvested savings, coupled with ongoing contributions, accelerates wealth accumulation for EPF members, Afzanizam added. “Contributors really need to do their due diligence before deciding to withdraw and spend, versus what they stand to gain if they let their savings grow until retirement,” he advised. This long-term perspective is particularly critical in a country where financial security in retirement remains a pressing concern for many.

Akaun Fleksibel: A New Attraction

Introduced to provide greater flexibility for EPF contributors, Akaun Fleksibel has made the fund a more attractive option compared to traditional bank savings accounts. Williams highlighted that the combination of high, risk-free dividends and the ability to withdraw funds positions EPF accounts as a superior choice for many Malaysians. “We can expect, and are seeing, an increase in voluntary contributions,” he said, pointing to a growing trend of savers opting to bolster their retirement funds through the EPF.

The fund’s performance in 2024 underscores its appeal. The 6.3% dividend rate surpassed expectations, offering contributors a robust return on their savings. EPF chief executive officer Ahmad Zulqarnain Onn revealed that an average of RM400 million is withdrawn monthly from Akaun Fleksibel. For 2025, the fund anticipates between RM11 billion and RM12 billion to flow into Account 3, with withdrawals projected at RM5 billion—a figure that could significantly influence consumer spending patterns.

Financial Literacy as a Safeguard

Amid the excitement surrounding potential economic boosts, experts and the EPF itself are emphasising the importance of financial literacy to ensure contributors make informed decisions. Afzanizam pointed to the EPF’s proactive efforts, including the latest Belanjawanku report, which incorporates a Retirement Income Adequacy (RIA) framework. This tool serves as a benchmark for members to assess whether their savings align with retirement needs. “This will help contributors measure themselves against their existing savings and understand how much they should keep,” he explained.

Such initiatives are vital in a context where the allure of immediate spending could undermine long-term financial stability. By fostering awareness of the importance of retirement savings, the EPF aims to encourage members to prioritise future security over short-term gains. This approach aligns with broader national goals of ensuring a sustainable economic future for Malaysia’s ageing population, a demographic challenge that looms large across South East Asia.

Broader Implications for Malaysia’s Economy

While the projected RM5 billion in withdrawals offers a tantalising prospect of economic stimulus, the nature of this boost warrants scrutiny. As Williams noted, the transfer of funds from savings to consumer spending does not equate to an increase in actual productivity. “It is not supply-side growth,” he clarified, suggesting that the government and policymakers must look beyond demand-driven measures to address structural economic challenges.

Malaysia’s economy has shown resilience in recent years, with steady growth underpinned by strong private consumption and strategic investments. However, reliance on consumption alone risks creating vulnerabilities, particularly if external shocks—such as global commodity price fluctuations or geopolitical tensions—disrupt domestic stability. Economists argue that sustainable growth will require diversification of economic drivers, including investment in infrastructure, innovation, and export-oriented industries.

The EPF withdrawals, while a welcome short-term boost, also raise questions about the balance between immediate economic needs and long-term financial planning. If a significant portion of contributors opts to withdraw funds for discretionary spending, it could reduce the pool of savings available for retirement, potentially straining social welfare systems in the future. This tension underscores the need for a nuanced policy approach that encourages both economic vitality and personal financial responsibility.

Regional Context and Comparisons

Malaysia’s experience with the EPF and Akaun Fleksibel offers a point of comparison for other South East Asian nations grappling with similar issues of retirement security and economic growth. In neighbouring Thailand, for instance, the Social Security Fund plays a comparable role, though with less flexibility for withdrawals. Singapore’s Central Provident Fund (CPF), often cited as a regional benchmark, balances strict savings mandates with limited access to funds for housing and healthcare, reflecting a more controlled approach to retirement planning.

Malaysia’s decision to allow greater flexibility through Akaun Fleksibel represents a middle ground, aiming to empower contributors while still encouraging savings. However, the success of this policy will depend on the extent to which financial literacy campaigns can mitigate the risks of over-withdrawal. Across the region, governments are increasingly recognising the need to address ageing populations and economic inequality, making Malaysia’s EPF strategy a potential model—or cautionary tale—for others to observe.

Looking Ahead

As Malaysia anticipates the economic ripple effects of RM5 billion in EPF withdrawals, the conversation is shifting towards sustainability. While the immediate boost to consumer spending and GDP is undeniable, experts remain wary of viewing such measures as a panacea for deeper structural challenges. The EPF’s high dividends and flexible withdrawal options have undoubtedly enhanced its appeal, but the long-term implications for retirement security and economic stability remain uncertain.

For now, the focus is on empowering contributors with the knowledge and tools to make informed decisions. The EPF’s commitment to financial literacy, coupled with its robust dividend performance, offers a foundation for balancing immediate economic needs with future planning. As Malaysia navigates this delicate equilibrium, the lessons learned could resonate far beyond its borders, shaping retirement and economic policies across South East Asia.