KUALA LUMPUR (April 26): The introduction of Account 3 (Flexible Account) by the Employees Provident Fund (EPF), which would allow members to make withdrawals at any time for any purpose, may only boost consumption in the near term, limiting any positive impact on the consumer industry and the economy in general, according to analysts. 

While major consumer discretionary firms like Padini Holdings Bhd, Aeon Co (M) Bhd, Parkson Holdings Bhd, and Malayan United Industries Bhd (which owns Metrojaya Department Store) experienced a significant sales boost in the second quarter of 2022, after EPF announced a special withdrawal in April 2022, Kenanga Research said the sales for those companies declined markedly in subsequent quarters, “indicating that the impact was short-lived”.

“The launch of Flexible Account is unlikely to significantly affect consumer discretionary sectors, including the automotive industry, which showed stable sales and backlog figures during the special withdrawal period of April-May 2022”, the research house said in a note on Friday.  

“Overall, we are of the view that contributors will allocate funds from Flexible Account prudently, with minimal expenditure on high-ticket items,” it added. 

EPF announced on Thursday that it will restructure its accounts for all members under age 55 into three categories, effective May 11, 2024. The three categories are the Retirement Account (previously known as Account 1), the Sejahtera Account (previously known as Account 2), and the Flexible Account (or Account 3). 

The new Flexible Account allows flexible withdrawals at any time for any purpose, with a minimum withdrawal of RM50.

Even with the announcement, Kenanga said it has not made any changes to its earnings forecasts, valuation methodology, target prices, and ratings for the consumer sector portfolio. 

“We still favour the consumer staples players, rather than the consumer discretionary names,” Kenanga said, naming Fraser & Neave Holdings Bhd and Mr DIY Group (M) Bhd as its top picks for the sector. 

According to CGS International, EPF has said that about RM20 billion to RM30 billion will likely be available for withdrawal from the facility. As such, the research firm expects the rollout of the Flexible Account to have a limited, yet noticeable impact on macroeconomic numbers, as the total estimated withdrawal will hardly stand out compared to the total size of private consumption at RM1.1 trillion, as at 2023. 

“We think generous retirement fund withdrawals should never be permanent. The scheme may boost near-term consumption; however, the trade-off is fewer funds available for investment, affecting economic growth potential,” it said. 

CGS International also pointed out that withdrawal patterns from the Flexible Account will depend on members’ available balances. It explained that those who used the various withdrawal facilities during the pandemic may have little- to no funds remaining in Account 2, and by extension, a lower amount in the Flexible Account. 

The research firm further noted that the majority of EPF members have limited balances. About 5.2 million, or 62% of active members, have a total balance of less than RM50,000. Within this segment, 3.2 million active members have less than RM10,000.

“Those who are in dire need for cash support are likely those that have limited balances, or not an EPF member at all,” CGS International said. 

“We think the key is to have in place, mechanisms that disincentivise recipients from being overly dependent on the EPF Flexible Account. This could include requiring a higher percentage of EPF contribution, or requiring a minimum threshold amount of total balances before the Flexible Account can be created,”  it added.  

https://www.theedgemarkets.com/node/709502