"The intention here is going back to our mandate because we are essentially a retirement fund. And retirement savings is about covering your expenses in retirement, (for which) the lump sum just doesn't make sense," he explained.
"Almost nobody allows for a lump-sum withdrawal anymore, unless they have a corresponding monthly payout. So since we don't have a monthly payout in Malaysia, we decided to take this step in the absence of the fact that there's no national pension," he said.
EPF has 1.01 trillion ringgit ($215.9 billion) in assets.
Mr. Nurhisham also laid out reasons for this change in policy including Malaysia's aging population, higher life expectancy, rising dependency ratios, and inadequate savings, particularly after COVID-19-related withdrawals.
"Savings are fairly inadequate," he said. "For active former sector members aged 51 to 55, only about 39% of them meet the basic savings requirement, which is 240,000 ringgit at 55."
EPF participants also ran down their savings "quite considerably" during COVID-19, he said. For instance, median savings for the Bumiputera, the indigenous people of the country who make up a majority of the population, is currently 6,440 ringgit, leaving them 27 ringgit a month on average during their 20 years or so of retirement.
"The situation is quite dire, in terms of basic retirement savings adequacy. So we have some people who have decent savings, but for most people, they just simply don't have enough," Mr. Nurhisham said.
Low wages contribute to poor savings rates, he said, along with the fact that "the full withdrawal age comes a full five years before retirement age. We currently have about 22% of members at age 60, who have essentially zero in their account."
The plan is also in discussions for the introduction of a third account for participants catered toward informal or gig workers, that will allow savings withdrawals before the age of 55.
Currently, 70% of a participant's monthly contribution goes into Account 1, which can only be accessed upon retirement, while the remaining 30% goes into Account 2, which can be used for other purposes such as housing, education, and health care.
The amount that will go into the proposed Account 3 is still in discussion but it will likely be 5%-10%, Mr. Nurhisham said.
The account will function like a savings account that is fully flexible, he added.
"One of the feedback that we've gotten from people, especially in the informal sector from gig workers and the like, is that they'd like to save more but they need the cash flow. So this will allow for them to save and hopefully compound through dividends while also meeting any potential immediate cash needs," he said.