What’s in this article
- What is the Employees Provident Fund (EPF)?
- Who Needs to Contribute to the EPF?
- How Much Do Employees and Employers Contribute to EPF?
- EPF Account Structure
- EPF Withdrawal Types and Conditions
- Dividend Rates and EPF Returns
- EPF Investment Schemes (EPF-MIS)
- Tax Benefits and Implications of EPF Contributions
- EPF for Employers
- EPF i-Akaun: Online Management for Members
- Recent and Future EPF Reforms
- Conclusion
- FAQs
The Employees Provident Fund (EPF), also known as Kumpulan Wang Simpanan Pekerja (KWSP), is a compulsory savings and retirement fund for Malaysian workers. It was established to ensure that citizens have a sustainable source of income post-retirement, helping to build financial stability for the future. In this guide, we’ll explore all aspects of the EPF, from contributions to withdrawal options, and highlight how this fund serves as a vital financial support for Malaysians and their employers alike.
What is the Employees Provident Fund (EPF)?
The EPF is a retirement savings scheme established under the EPF Act 1991. Designed to encourage long-term savings for Malaysian citizens, it requires both employees and employers to make monthly contributions based on the employee’s salary. Furthermore, these funds accumulate throughout an employee’s career and are accessible upon reaching retirement age or for specific pre-retirement purposes.
The EPF is divided into three primary functions:
- Retirement Savings: Acts as a mandatory retirement fund, ensuring financial security for employees post-retirement.
- Investment Options: Allows members to grow their savings by investing in approved funds.
- Account Structure: Split into two accounts, each with distinct purposes and withdrawal conditions.
Who Needs to Contribute to the EPF?
Eligibility for EPF Membership
Membership is mandatory for most employees in Malaysia:
- Malaysian Citizens: All employees, regardless of job type, must contribute.
- Permanent Residents: Foreign workers with permanent residency are also required to participate.
- Foreign Workers: Contribution is optional, although many companies do offer EPF to foreign employees as a benefit.
Who Contributes?
Both employers and employees are required to contribute to the EPF:
- Employers: All companies or individuals employing at least one person are obligated to contribute.
- Employees: Contributions are automatically deducted from monthly wages for eligible employees.
Exemptions from EPF Contributions
Some individuals and job categories are exempt from EPF contributions, including:
- Employees with very low income: Employees earning less than RM10 per month.
- Certain Government Employees: Those who have opted for alternative pension schemes.
- Part-Time Domestic Workers: Contributions are optional based on employer preference.
How Much Do Employees and Employers Contribute to EPF?
Standard Contribution Rates
For most employees under the age of 60, contributions are:
- Employee Contribution: 11% of their monthly salary (with the option to voluntarily contribute more).
- Employer Contribution: 13% for employees earning RM5,000 or less, and 12% for those earning more.
Contribution Rates for Employees Over 60
Employees aged 60 and above, who may already be eligible for retirement, can opt for lower contribution rates:
- Employee Contribution: 0% (or an optional 5.5% for employees choosing to continue).
- Employer Contribution: Fixed at 4%, regardless of salary amount.
The percentage rates have been periodically adjusted by the Malaysian government to adapt to economic changes and promote higher retirement savings.
EPF Account Structure
The EPF splits its funds into two separate accounts, each serving different purposes:
- Account 1
- Purpose: Primarily for long-term retirement savings and can only be withdrawn at age 55 or 60.
- Contribution Proportion: Receives 70% of the employee’s monthly EPF contributions.
- Usage Restrictions: Account 1 savings are locked for retirement purposes but can be used for EPF’s Investment Scheme (EPF-MIS) under specific conditions.
- Account 2
- Purpose: Allows pre-retirement withdrawals for housing, education, medical expenses, and other approved uses.
- Contribution Proportion: Receives 30% of the monthly contributions.
- Usage Flexibility: Members can withdraw from Account 2 for designated purposes, such as financing a home purchase, paying for education, or covering medical costs.
EPF Withdrawal Types and Conditions
EPF withdrawals fall under two main categories: age-based and pre-retirement withdrawals.
Age-Based Withdrawals
- Age 50 Withdrawal: Members may withdraw all or part of their savings from Account 2 once they reach age 50.
- Age 55 Withdrawal: Full access to all EPF savings, as members reach the official EPF retirement age.
- Age 60 Withdrawal: Members have full access to all accumulated savings, with optional continued contributions if they choose to work beyond 60.
Pre-Retirement Withdrawals
These withdrawals allow members to access savings from Account 2 for specific purposes before retirement:
- Housing Withdrawals: Members can use up to 30% of Account 2 savings to purchase a home, reduce a mortgage, or settle a balance.
- Education Withdrawals: Funds can cover tuition fees for members or their children for local or overseas higher education.
- Medical Withdrawals: Funds can be used for medical expenses, including treatments for critical illnesses or for necessary medical equipment.
- Investment Withdrawals: A portion of Account 1 savings can be invested in approved funds, giving members a chance to grow their retirement fund.
- Hajj Withdrawals: Members may use Account 2 funds to partially finance a pilgrimage to Mecca.
Retirement Options and Post-Retirement Withdrawal Choices
Upon reaching retirement age (55 or 60), EPF members can choose from several withdrawal options to best manage their savings:
- Full Lump-Sum Withdrawal: Withdraw all savings at once, useful for those who have a retirement plan in place.
- Monthly Withdrawal Plan: Members can set up a monthly payment plan to provide consistent post-retirement income.
- Partial Withdrawal: Members may choose to withdraw a specific portion of their funds and leave the rest to grow through annual dividends.
Dividend Rates and EPF Returns
The EPF declares dividends annually, and these returns are credited directly to members’ accounts. Dividend rates vary yearly based on EPF’s investment performance. The rates have historically been around 5% to 6%, with Shariah-compliant savings typically receiving slightly higher dividends.
EPF Investment Schemes (EPF-MIS)
Eligibility for the EPF Investment Scheme (EPF-MIS)
Members with more than RM100,000 in their Account 1 can transfer up to 30% of the balance exceeding RM100,000 into approved investment funds.
Investment Opportunities
Members can diversify their portfolios by choosing from government-approved unit trusts and other investment funds, enhancing potential returns compared to standard EPF dividend rates.
Tax Benefits and Implications of EPF Contributions
The EPF is an excellent tax-efficient savings vehicle, as it offers:
- Personal Income Tax Relief: Contributions up to RM4,000 (combined with life insurance premiums) qualify for annual tax relief.
- Tax-Free Withdrawals: EPF withdrawals are tax-exempt, which ensures that members’ retirement funds are not diminished by taxes.
EPF for Employers
Employers play a crucial role in the EPF scheme, as they are responsible for making monthly contributions on behalf of employees.
Employer Responsibilities
- Monthly Deductions: Ensuring timely deduction of employees’ contributions.
- Payment Deadlines: Contributions must be made by the 15th of each month to avoid penalties.
Non-Compliance Penalties
Employers who fail to make timely contributions face penalties, fines, or legal action. Regular contributions enhance employee satisfaction and retention by supporting long-term financial stability.
EPF i-Akaun: Online Management for Members
The EPF offers an online platform called i-Akaun to facilitate easy access to account information. Key features include:
- Balance Check: View contributions, balances, and transactions.
- Withdrawal Requests: Submit and track withdrawal applications for eligible needs.
- Investment Management: Monitor investments made under the EPF Investment Scheme (EPF-MIS).
i-Akaun enables members to manage their savings conveniently, allowing for regular monitoring and a greater sense of control over their financial future.
Recent and Future EPF Reforms
The EPF adapts to meet the needs of Malaysians and economic conditions, with recent reforms including:
- Voluntary Contribution Increases: Allowing members to increase their monthly contributions beyond the standard 11%.
- Flexible Withdrawal Options: Providing phased withdrawals post-retirement to better suit individual financial plans.
- i-Saraan Scheme: An option for self-employed individuals and those in the informal sector to contribute voluntarily to EPF.
These reforms demonstrate EPF’s commitment to supporting diverse financial needs while ensuring adequate retirement savings for members.
Conclusion
The EPF is a cornerstone of financial security for Malaysians, helping employees save consistently for a comfortable retirement. By providing structured contributions, flexible investment options, and a variety of withdrawal choices, the EPF enables members to save strategically and plan for the future with confidence.
For employers, the EPF fosters a stronger relationship with employees by providing a retirement safety net, supporting both recruitment and retention. For members, understanding EPF regulations and utilizing the options available can maximize retirement savings, foster prudent investments, and ultimately secure a financially stable post-retirement life.
FAQs
The EPF is a retirement savings scheme in Malaysia that requires both employers and employees to contribute monthly, providing financial security for employees post-retirement.
All Malaysian citizens and permanent residents working in Malaysia must contribute to the EPF. Foreign workers may contribute voluntarily if offered by their employer.
For employees under 60, the contribution rate is 11% from employees and 12–13% from employers, depending on income. Different rates apply for employees over 60.
Yes, partial withdrawals are allowed from Account 2 for specific needs like housing, education, and medical expenses, while Account 1 is mainly for retirement.
The EPF has two accounts: Account 1 (70% of savings) for retirement and Account 2 (30%) for approved early withdrawals.
Full withdrawal is allowed at age 55, with additional options at age 60. Members may also withdraw all or part of their savings upon permanent disability or for certain other conditions.
Members with sufficient savings in Account 1 can invest a portion in approved funds to potentially grow their retirement savings.
No, EPF withdrawals are tax-exempt, making it a tax-efficient way to save for retirement.
Members can view their EPF balance, contributions, and transaction history through the EPF’s i-Akaun online portal.
EPF savings will be distributed to the nominated beneficiaries or legal heirs, as per the member’s nomination or in line with Malaysian succession law.
