Financial planners urge caution over use of EPF funds for medical insurance

Free Malaysia Today

6 hours ago

Health minister Dzulkefly Ahmad has suggested that EPF allow its contributors to use a small portion of their retirement savings to buy medical coverage.
PETALING JAYA : Two financial planners have raised concerns over a proposal to allow Employees Provident Fund (EPF) members to use a portion of their retirement savings for medical insurance, warning that the move could undermine long-term financial security.
Rajendaran Vairavan said withdrawals from Account 2, even for something as essential as medical insurance, could undermine long-term financial stability.
'Diverting funds toward medical insurance today means eroding retirement capital tomorrow,' he said.
Rajendaran said the withdrawals could result in a lower quality of life post-retirement and lead to greater dependence on family members or public assistance.
Rajendaran Vairavan.
He warned that the proposed 1% cap on withdrawals, while small, may create a 'false sense of security'.
'It might encourage frequent withdrawals for minor expenses under the assumption that the impact is small—but cumulatively, these add up and erode retirement savings,' he said.
Rajendaran urged members to treat EPF withdrawals as a last resort, and only after careful retirement planning.
He said members should first explore other available avenues, such as participating in employer-sponsored health coverage or using personal emergency savings, before dipping into their retirement funds.
Last Friday, health minister Dzulkefly Ahmad proposed that EPF allow contributors to use funds in their 'Account 2' to pay for medical insurance premiums. He said the move would allow members access to faster, higher-quality healthcare offered by the private sector in Malaysia.
EPF members are currently able to access their Account 2 funds to meet some of their education, healthcare and housing needs. They are also allowed to make a partial withdrawal at age 50.
Another financial planner, Noorul Azila Kamaruzzaman, also cautioned against allowing withdrawals for non-retirement purposes, saying they would dilute the very essence of EPF savings.
Noorul Azila Kamaruzzaman.
She acknowledged the importance of medical insurance but argued that it should not come at the cost of long-term savings.
'That wouldn't be a financially prudent decision,' she said, especially for those already struggling to save enough for their retirement.
A Khazanah Research Institute report last year found that 52% of EPF members aged 55 and below have less than RM10,000 in savings, potentially leaving them with insufficient funds for retirement.
Azila said retirees may be left with few alternatives if their retirement savings run dry, and may be forced to depend on their children for support.
However, she said members with healthy EPF balances who lack medical coverage should be allowed to utilise a small portion for a basic policy.
She also suggested that those who opt to withdraw for this purpose should commit to rebuilding their savings, either through voluntary EPF contributions or other investments.
'Either way, this decision must be part of a holistic financial plan, not a standalone solution,' said Azila.