The Malaysian EPF, short for Employees’ Provident Fund is a personal account that you must have if you are part of any workforce. It is a mandatory contribution for Malaysians who are in the workforce in one way or another.
The main idea behind the EPF is to activate what is known as forced savings. Young graduates often fall into this problem. Because income earners tend to spend more than they earn, the EPF is useful as it ensures that you have some money left when you reached your retirement age. It is as simple as that!
So, what is the EPF really?
The EPF works as a retirement savings account. It is meant for those working in the:
- Private sector
- non-pensionable public sector
In other words, as long as you are employed by any organisation, you would automatically become a member of EPF which means you will have an active account with them. Besides this, you could be a voluntary contributor as well. This applies to those who are self-employed or even for those who would like to contribute more for savings purposes.
On top of that, employers are required to contribute on your behalf as well. This means that each month, your contribution to EPF will come from 2 sources, yourself as an employee and your employer.
What is the rate of EPF contribution?
The more you earn, the higher your contribution will be. This works on a percentage concept. The rate usually hovers around 13% depending on any changes made by the government of Malaysia. The current rate is 13% for those earning less than RM5,000 per month and 12% for those earning more than RM5,000. Meanwhile, employees will contribute about 8% or 11% of your monthly salary.
What are the funds used for?
It must be noted that not all the contributions are used for post-retirement. Your funds in your account are divided as follow:
- 70% is placed in Akaun 1, which is the main account
- 30% is placed in Akaun 2
In the past, there used to be a third account which has now been consolidated and merged into the 2.
Apart from Akaun 1 and Akaun 2, there are other types of accounts in your EPF. This include:
- Akaun 55 – This becomes the sole account after you reached 55 years of age. What happens here is that Akaun 1 and Akaun 2 will be merged into Akaun 55. With this, you can then withdraw the funds which can be done monthly, partially or in a lump sum. If you decide to keep some funds in the account, you will still enjoy the annual dividend as and when it is given by EPF
- Akaun Emas – Not everyone will retire for good after 55. Should you continue to work or employed after this age, your EPF account becomes Akaun Emas. This is where you will not be able to make any withdrawal until you reach 60 years old.
What can you do with Akaun 1 and Akaun 2?
Bearing in mind that you might have a lot of funds in your EPF account, you are not allowed to use them as you wish. There are specific reasons why they are placed in separate accounts. This is where you need to know what you can do with them.
Akaun 1 – Entirely for retirement
As this takes up a majority of your EPF funds, it is intended solely for your retirement. You can only take this money out after you retire. This is where your forced savings go to so that you have something after you stopped working
Akaun 2 – Available for specific purposes
You are allowed to make pre-retirement withdrawals from your Akaun 2. These withdrawals are to ensure that your retirement is better off. This includes:
- Housing – Helps you to buy your property
- Education – You can withdraw this fund to pay for education whether it is for yourself or your children
- Medical – Can be used by members to pay for certain types of medical treatment.
- Optional age withdrawal – When you reach 50 years of age, you can actually withdraw the funds from Akaun 2 in its entirety.
- Haj – You can withdraw up to RM3,000 from Akaun 2 to help finance your Haj responsibilities
How stable is EPF?
You can look at EPF as a form of mutual fund and you know that these are among the more reliable investments. Having said that, no investment is totally risk-free. But when you have the government’s backing, it changes the entire dynamics of the investment.
It is the largest type of fund in the market. But as a member of the fund, you will know where your money is going. A recent investment into Felda’s FGV has raised some eye brows but EPF has so far been able to stay in the positives.
Important information about EPF
Here are some benefits you should know besides the usual:
- Dividends – there is a guaranteed 2.5% annual dividend earnings. This is the basic rate where it is usually higher
- Death benefit – Your next of kin will be given a death benefit of RM2,500 if the member has not reached 55 at the point of death
- Tax exemptions – You can enjoy tax relief of up to RM6,000 per year which is summed up with your life insurance
- Incapacitation – if the member comes under a situation where he is unfit for work, they can apply for a RM5,000 Incapacitation Withdrawal