Employees Provident Fund
Let’s begin by defining what the Employees Provident Fund is; it is basically a compulsory savings scheme in Malaysia. The objective of this fund is to provide a measure of security for retirement to its members, there are also supplementary benefits from this saving scheme that can be utilized by its members such as using part of the savings for house ownership as well as other withdrawal schemes. The abbreviation EPF stands for Employees Provident Fund or in Malay it is commonly known as KWSP or Kumpulan Wang Simpanan Pekerja. The act that governs the Employees Provident Fund in Malaysia is the Employees Provident Fund Act 1991 and it is administered by the Employees Provident Fund, Malaysia.
Who are the ones that should contribute to this fund?
All employees in Malaysia that have already reached the age of 16 and they are employed under a contract of service whether it is implied or expressed and whether it is through writing or orally must then register as a member of the Employees Provident Fund. The employers will then contribute 12% of the employee’s wages while the employee themselves will contribute 11% of their monthly wages towards the employee’s account.
Expatriates and foreign workers were not required to contribute to the EPF prior to the 1 st of August 1998, but if they wish they could still elect to do so. However, with effect of 1 st of August 1995, with exception of certain categories all foreign workers and expatriates that earns less than RM2, 500 per month will then be required to contribute to the EPF. The ones that do not have to contribute to this compulsory contribution are for example, Thai workers who have entered Malaysia with a Territorial Pass, foreign domestic maids, out-workers that do cleaning and alteration repair works, pensioners, employees or workers that holds Employment Passes or the expatriates that holds Visit Passes (Temporary Employment) where their wages are less than RM2, 500 per month, seamen, people that are detained in custody, in prison, Henry Gurney School and mental hospital. Even so, if people that fall under this category wish to contribute towards this fund, they can still do so. If a member continues their employment after they have withdrew the contributions upon their retirement, the particular member may choose to continue to contribute to the EPF by submitting the KWSP 20/20A Form.
The statutory rates of the contributions are as follows:
|% of the contributions of the employees’ wages|
|All except the expatriates and the foreign workers||12%||11%|
|Expatriates and foreign workers (except those that have been excluded)||RM5 per person||11%|
If they wish the employees and the employers are allowed to contribute at higher rates.
What is the procedure that is required to register an employee with EPF?
Under Malaysian Law, employers are required to register their employees with the EPF within 7 days of the employment. According to section 41(2) of the EPF Act 1991, an employer that contravenes the required procedure will then be found guilty of the offence and shall be liable, on conviction to either imprisonment for e term that does not exceed that of 3 years or a fine that does not exceed RM10, 000 or to both. Before the employers register their employees they must first register their firm or the company with the EPF by submitting the KWSP 1 form which can be obtained at any of the nearest EPF branch office.
After that for each of the employee, the employer along with the employee will be required to complete the KWSP 3 (AHL) Form. Usually, an employee will also be required to submit the Nomination Form KWSP 4 (AHL) which will then be attached together with the KWSP 3 (AHL) Form. Once the application has been approved, the employee will then be sent a Membership Card and the EPF contribution by both the employee and employer will commence on the first month with the salary payment pursuant to section 45(2) of the EPF Act 1991.
When should the employer pay the contribution to the EPF?
The employer is required to contribute to the Employees Provident Fund before the first week in the first month where the employer will prepare as well as furnish a statement of wages to each of the employees. Any employer that fails to make the contribution to the EPF and if found guilt of the offense will then be liable on conviction to imprisonment for a term that will not exceed 3 years or to a fine that does not exceed the amount of RM10, 000 or to both.
If a member dies, then what will happen to the EPF monies?
According to the Death Withdrawal Scheme, the beneficiary will be one that was registered by the deceased as their heir or in the event that the deceased did not name a beneficiary, then the person that is deemed to be acceptable by EPF will have the right to apply for the deceased savings. This means that the beneficiary or the next-of-kin will be allowed to withdraw the deceased entire savings.
If that particular member dies before they reach the age pf 60 years of age, the member’s dependant will then be paid the Death Benefits. The nominees of the member will then be entitled to the monies upon the death of the member irrespective of whether there is a will or not. However, you should take note that the nominations that were made before marriage will be automatically canceled and fresh nominations must be made anew.
If a particular member dies without naming a beneficiary, then the following person will have the right to with their savings and this includes; if the deceased is single then it will include the parents of the deceased, anyone else that is deemed by the EPF to be qualified to receive the monies, the inheritance administrator, and the siblings of the deceased. However if the deceased is married then the people that will be allowed to withdraw the savings include; the parents of the deceased, anyone else that is deemed by the EPF to be qualified to receive the monies, the inheritance administrator, the siblings of the deceased, the spouse of the deceased and the children of the deceased or their guardians if they are not of age yet.
There three types of payments made by EPF if the deceased had not named a beneficiary. If the total savings of the deceased is not more than RM20, 000 and a Probation Letter, a Administrative Letter or a Distributing Command was not submitted within 2 months from the date of the death, then the EPF will have the right to relay the monies to the parties in which the EPF deems qualified to receive the interest from the deceased or to relay the monies to the parties whom the EPF deems qualified to hold such letters.
If the total savings of the deceased is between the amount of RM20, 000 and RM 30, 000, then EPF will not be able to pay more than 50% of the total savings to the category of people that were mentioned. If the total savings of the deceased is more than RM30, 000 then EPF will only be able to pay 25% of that particular persons total savings or the RM30, 000, whichever is lower to the qualified person.
If the member is a Muslim and they have named a beneficiary, then that particular beneficiary will only act as an executor or a “wasi”. This person upon the death of the member will be responsible for the distribution of the savings of the deceased in accordance with Faraid (inheritance) laws to the legal heirs. The nominees can make their claims from the Employee Provident Fund by completing the KWSP 9 (KM) form.
For the named beneficiary who has not reached the legal age of 18 years old yet, they would then need to complete the additional KWSP 22 form while for the applicants who are the legal heir to the named beneficiary but has passed away before the deceased member, then the naming of the new beneficiary are required to submit the KWSP 10A from in addition with the KWSP 9 (KM) form.
So to avoid all this inconvenience it is best advisable that you name the beneficiary, so that your loved ones or the next-of-kin do not need to go through all that trouble.
How is a beneficiary nominated?
Only members who are above the age of 18 years will be able to nominate any person or persons to become their beneficiary. For them to do so they must first complete and submit the KWSP 4 (AHL) from for the record of EPF. During the naming of the beneficiary, a witness will be required; however the witness cannot be the beneficiary. If for any reason you would want to change the nominee or the nominees, then you would need to complete and submit a new KWSP 4 (AHL) form, and this will automatically replace your previous nomination. So in the unfortunate event that the member has passed away, then immediate payment will be made to the named beneficiary.
Under what type of circumstances can a member withdraw the entire EPF contributions?
The full amount of the contributions can be withdrawn by the EPF members if; the member has passed away where the withdrawal shall be made by the beneficiaries, for the expatriate and foreign workers who have already contributed but are excluded, on attaining the age of 55 years old, if that particular member is prevented from engaging in any further employment by reasons such as mental or physical incapacitation or the members have chosen to leave Malaysia permanently.
If the member chooses to withdraw all their savings on reaching the age of 5 years old, the application can be made by completing and submitting the KWSP 9B (AHL) form and enclosing it with a copy of the applicants identity card. There are three types of options for the withdrawal under the Retirement Withdrawal Scheme and they include the periodical payment withdrawal scheme, the annuity scheme, a lump sum withdrawal, and an annual dividend withdrawal scheme.
If the particular member is an expatriate or have already canceled their citizenship of Malaysia and is planning on leaving Malaysia with no intention of returning, then that member will be allowed to withdraw their entire savings. They will be required to proceed to the nearest EPF office and submit both the KWSP 9 (DN) and the KWSP 9B (AHL) form.
If a member is unable to work due to them experiencing mental or physical disability then they will be allowed to withdraw their entire savings from EPF. They would then be required to make the applications under the Mental or Physical Incapacitation Withdrawal Scheme. Not only that but if a particular member withdraws their savings before they each the age of 60 years old using the scheme that was mentioned earlier, the members will also receive Disability Benefits. For a member to withdraw the savings from the Physical or Mental Incapacitation Withdrawal Scheme, they must then complete and submit the KWSP 9B (AHL) form along with a copy of their identity card as well as a medical report proving their disability. In the medical report it must contain information such as the present state of health and the accident or the illness that had caused the disability. Other things that you will need to take note of is that the medical report that you have obtained from a clinic or a private hospital must not be more than 6 months of the issuing date while the reports obtained from a Government or University Hospital must not be more than 1 year old. If there is a letter of resignation stating the cause of the resignation or retrenchment by the employer, make sure that you enclose it with all the other relevant information. However, if such letter in not available then the member may submit a Statutory Declaration that is made before a Magistrate that states the following information and they include; the date of the resignation, the reasons behind the resignation, the name of the last employer and the position that you last held. The member will then be referred to a panel of doctors on the behalf of the EPF for check up where the approval of the application will depend on the decision made by the panel of doctors. If the member chooses they can also obtain the approval from a Medical Practitioner in any of the Government Hospitals located in Malaysia.
What are the requirements to withdraw partial contributions from EPF?
A member’s account is divided and maintained in 3 separate sub-accounts for the purpose of withdrawal from the EPF.
|The % of the contributions|
|Account I||For retirement purposes at the age of 55||60|
|Account II||For housing, education, the purchase of computers and other form of withdrawals at the age of 50||30|
|Account III||For health and other medical reasons||10|
Members should take note that some of the conditions must be fulfilled before the EPF savings can be withdrawn. There is also the pre-retirement savings where a member can withdraw their entire savings from the Account II at the age of 50 by completing and submitting the KWSP 9B (AHL) form.
As for the Account III, withdrawal can only be made to meet the medical costs and the particular member can withdraw all their contributions for the cost of the medical treatment in Account III; however it will be subjected to the approval by the medical board. The Medical Withdrawal Scheme can be used not only for the members themselves but it can also be used to cover the spouses, the siblings, children (if any), as well as the parents. You can also obtain the list of the critical illnesses that can be qualified for withdrawal from any of the EPF office and to apply for the withdrawals a member must complete and submit the KWSP 9D (AHL) form.
Members are also able to withdraw their savings from EPF in the Account II under the Educational Withdrawal Scheme, so that they can pay for the fees of the education either for themselves or for their children to further their studies either in a local institution or abroad. They can also withdraw their savings for the purchase of a personal computer either for themselves or for their children under the Computer Withdrawal Scheme; however under this particular scheme there are certain conditions that the members must adhere to.
As for the EPF members who are still serving the public sector and are eligible for pensions, they will be allowed to withdraw the employee’s share of the contribution that will be exclusive of the dividends. Those that wish to apply for withdrawal of the savings must first submit the KWSP 9J (AHL) along with a certified copy of their Identity Card, they would also need a confirmation letter regarding of the service period (JPA/PEN228/11/5-6) from the Head of Department as well as Appendix A and A-1.
For the members with more than RM55, 000 in the Account I, they will be allowed to invest a portion of their savings under the Members’ Investment Scheme in fund management companies that have been approved by the Ministry of Finance. And finally there is also the Annuity Scheme that will allow its members to withdraw from their EPF accounts to purchase an annuity plane from insurance companies that will provide their members a guaranteed regular income from the age of 55 to the rest of their lives.
Am I eligible to withdraw under the education withdrawal scheme?
As a member of the EPF you will be entitled to withdraw money from your savings to pursue your studies at the diploma level. If it is withdrawal for your children’s education then it can be used for either their degree or postgraduate degree courses. The amount that is qualified for the withdrawal is either the total amount of contributions in the Account II or the maximum amount of the total fees, whichever one is lower. The withdrawal from the funds can be made in each of the academic year but it will be subjected to the availability of the funds in the Account II. EPF will then make payment in any of the 3 modes and they include the direct payment to the financial institutions to settle or to reduce the balance of the study loans that you have taken up. This will be under the specific conditions that you or you child are currently studying in the institutions of higher learning that will include the study loans under either your name or both you and the child’s name. EPF could also make the direct payment to the institution that you are currently studying in or they could make the payment to you or you child that are pursuing the studies abroad or any of the payment made to you that is subjected to the terms and conditions.
You will then be required to check the balance left in your EPF Account II before you make any application for withdrawal and then you must obtain a letter from the EPF on the amount that will be allowed to be withdrawn. The following documents must be submitted in order for them to obtain the letter from EPF and they include a certified copy of the applicant’s identity card and a letter of acceptance from the college or the university that states that you will be pursuing your studies at the diploma level and above. If it is your children who will be pursuing their first year of studies at the degree level and above, as for the subsequent years a letter of registration will be required. For this particular scheme you can apply for it by submitting the KWSP 9H (AHL) form along with the other relevant information to support your application to the nearest EPF office.
Am I eligible to withdraw under the computer withdrawal scheme?
Members of EPF will be able to withdraw up to the amount of RM3, 500 or subject to the balance that remains in the Account II, whichever is lower according to the Computer Withdrawal Scheme. As for the joint application, members will only be allowed to withdraw up to the amount of RM3, 500 only or subject to the balance in the Account II, whichever one is lower, you will also need to be aware that for the joint application, an application will be required to be submitted together. And if you have previously withdrawn under this scheme you will not be eligible to withdraw again as you will only be permitted to withdraw once. You will be required to submit the KWSP 9K (AHL) form to the appointed dealers if you wish to apply for this type of withdrawal, the dealers for example include Bank Simpanan Nasioanl or Pos Malaysia Berhad. You will also be required to submit other relevant documents along with your application and your computer will be delivered to you once your application has been approved.
Under the Member’s Investment Scheme, how much will I be able to withdraw?
For the members with more than RM55, 000 in their Account I, they will be able to invest up to about 20% of the excess amount in any of the approved unit trust funds under the Member’s Investment Scheme. Members will be able to invest a minimum of RM1, 000 from their savings. You can use the formula that will be provided to calculate the amount you will be able to withdraw, which goes like this;
(Balance in Account I – the amount above RM55, 000 in Account I) X 20%
Three months after the first withdrawal you will then be allowed to withdraw from your savings a second time to invest in the Investment Scheme. However you need to be aware that for any of the withdrawal the Account I must have a minimum of RM55, OOO before you can make the withdrawal. Another thing that you need to take note of is that you can only invest your savings in the unit trusts funds that has been approved by the Ministry of Finance. EPF will not take any responsibility for the investments that you make, so it is advisable that you do thorough research on the particular unit trust funds before you actually make an investment in them. For the investment purposes you will need to obtain the Statement of Account as well as complete and submit the KAWP (AHL) form before you can make the withdrawal.
Currently there are 33 approved Fund Managers that you can choose from and they include; Kuala Lumpur Mutual Fund Bhd, Rashid Hussain Asset Managemtn Sdn Bhd, HLG Asset Management Ssn Bhd, Jardine Fleming Apex Unit Trust Bhd, Arab-Malaysia Unit Trust Bhd, Bumiputrs Merchant Bankers Bhd, Commerce-BT Unit Trust Management Bhd, OSK-UOB Unit Trsut Management Bhd, Mayban Management Bhd, Amanah Merchant Bank Bhd, BHLB Asset Management Bhd, TA Unit Trust Management Bhd, AMMB Asset Management Sdn Bhd, Pacific Mutual Fund Bhd, RHB Unit Trust Management, Mayban UBS Asset Management Sdn Bhd, Perdana Merchant Bank Bhd, Amanah Saham Nasional Berhad – ASN 2, Utama SSSB Unit Trust Management Bhd, Affin Fund Management Sdn Bhd, BBMB Unit Trust Management Bhd, BHLB Pacific Trust Management Sdn Bhd, ASM Mara Unit Trust Management Bhd, MIMB Aberdeen Asset Management Sdn Bhd, Amanah Saham Sarawak, Permodalan BSN Bhd, Asia Unit Trust Bhd, Philip Capital Management Sdn Bhd, SBB Asset Management Sdn Bhd, Lembaga Tabung Haji, SBB Unit Trust Management Bhd and MBF Unit Trust Management Bhd.
How does the Annuity Scheme work?
The Annuity Scheme is eligible for those that are not considered as the public sector pensionable employees and the scheme itself is to help the members manage their post-retirement fund. The scheme will basically provide you with a guaranteed regular pension income for life starting at the age of 55 years old for each of the applicant. For this particular scheme you will be allowed to withdraw from all three of your EPF Account (I, II and III) to purchase the annuity plan, however you should take note that you can only do so from the Insurance companies that has been approved by the Ministry of Finance. Currently EPF is offering 2 types of annuity schemes for its member to purchase and they include; the Takaful Annuity Scheme and the Conventional Annuity Scheme. There are two products that can be found in both of the schemes; the first product is known as the deferred annuity where you will then be able to purchase the annuity policy before you reach the retirement age of 55. After that you will receive a monthly income as you as you reach the age of 55 years old and under the Takaful Scheme you will receive the monthly payment until you reach the age of 100 years old. The second type of product is called the immediate annuity where members will be able to purchase the annuity policy between the ages of 55 and 70. In this case the monthly pension will commence 1 month after the date you have purchased this scheme and under the Takaful Scheme you will be able to receive the monthly payments until the age of 100 years of age.
The premium rates for both the products that were mentioned will depend on your gender as well as your age. The annuity scheme is purchase on a unit basis, so for example 1 unit that you have purchased will basically provide you with a guaranteed minimum monthly income of RM100 per month for the rest of your life while under the Takaful Scheme there is no such guarantee. You will also be allowed to purchase as many of the annuity units as you like in order to meet the type of retirement that you like and there are also no requirements for medical examinations. You can make payment of the premium to the insurance companies once every 3 months for the first type of product while the one-off single will apply for the second type.
In the unfortunate event that the annuity policy holder dies before they reach the age of 55 years old, then it is the beneficiaries who will receive the monthly payment for a guaranteed term of 10 years starting from the year that the member passes away. After the 10 year period the policy will be considered to be null and void.
In the event of death before the age of 55, the annuity policy holder’s beneficiaries will receive the monthly payments for a guaranteed 10 years starting from the year the member dies. The policy will be null and void after the 10 years period. This goes for the Takaful Scheme as well where the beneficiaries will receive the yearly annuity payments for the next 10 years. If the circumstance arises where the policy holder dies after the age of 55 years old, then their beneficiaries will receive the monthly payments for the balance of the guaranteed 10 years. However if the policy holder passes away after the age of 65 then annuity will be paid to the beneficiaries.
If the policy holder sustains total and permanent disability due to an unfortunate event then the member will receive the monthly payments for the rest of their life or until death occurs. While in such cases the beneficiaries will receive the payments for the balance for the balance of the guaranteed 10 years. The Annuity Scheme is relatively easy to purchase and all the applicants will be automatically accepted. Applicants will be required to complete and submit the KWSP 9G (AHL) form and also enclose the statement that shows the number of annuity units that you will be eligible to purchase.
All the applicants will then be given a “Cooling off Period” of 15 days; this is where the applicants will be able to cancel the policy without incurring any form of penalty. However if you do decide to surrender the policy after the period has lapsed then a service charge will be levied. After that the total bonus and the premium that has been deducted the service charge will be returned to you. You should also take note that the “Cooling off Periods” does not apply for the Takaful Scheme.
What are the terms and conditions for the withdrawal under the Housing Withdrawal Scheme?
Members can withdraw a total of 30% from Account II for the intention of purchasing or constructing of a residential house, commercial shop lots or even to reduce the mortgage of such purchases. Members will be able to withdraw a difference between that of the price of the house and the loan along with the additional 10% of the price of that particular property or all the savings in Account II, whichever one is lower.
The formula to calculate is as follows;
(Cost of the house – The loan amount) + 10% of the cost of the house
For the members who wish to withdraw money from their savings under this particular scheme, they will then need to complete and submit the KWSP 9C (AHL) form. You will also be required to submit other relevant documentation to support you in the process of making withdrawals under this scheme. You need to be aware that the withdrawal for the purchase of a house must be made within 2 years from the date that you have signed the Sale and Purchase Agreement.
Another thing that you will need to be aware of is that with effect from 2 nd of January of 2001, no withdrawal can be made for the purchase of a second house unless the first house, which was funded by the EPF savings, is being sold.
If you wish to purchase a second house subject to the condition that was mentioned earlier, then the members will be required to submit documentation to prove the sale of that particular property and this will include; the Memorandum of Transfer (KTN 14A), the Loan Agreement Cum Assignment, the Title Deed under the name of the member and the Deed of the Assignment. Members will then be able to make further withdrawals once every 3 years from their Account II to service the loan for the existing house if the purchase of the second house or commercial shop lots were made before the 2 nd of January 2001, the outstanding balance of the loan used to purchase the house or the commercial shop lots as well as the mortgage itself is from the first mortgage and the member has not reached the age of 55 years old during the approval of the application.
You will also not be allowed to withdraw the money from your savings for the purpose of renovating your house, repair the existing property that you, or to collateral the house so that you will be able to acquire the finance for the purpose of other than to build a house or to purchase one. If you are withdrawing for the purpose of servicing your house loan, then you will be able to withdraw all your savings from Account II or the balance from the housing loan, whichever is lower. If it is under a joint application, then both the parties will be able to withdraw all their savings from their Account II or the balance from the housing loan, whichever one is lower. However you need to be aware that EPF will first process the application before allowing the withdrawal from both the party’s account. This means that EPF will process the application from buyer 1 and only when they have found that the savings is not enough, and then EPF will process the application for buyer 2.
How long will it take for EPF to approve my application for the withdrawal?
From the time of the application that was made, the withdrawals will most likely take you about 2 weeks, this is of course if the applicant fulfills all the necessary requirements and the forms have been properly filled out. Applicants should take note that the processing of the applications during the peak periods will take a much longer time compared to the normal circumstances.
How much of the accumulated funds on contributions can EPF invest?
EPF will invest the monies that have been accumulated on the contributions to accumulate the dividend or the interest. The EPF Act 1991 is the act that will provide the establishment for the Investment Panel to formulate the investment strategies as well as the policies. According to the EPF Act 1991, EPF will only be able to invest in approved activities such as the Debts and Loans, Equity, the Malaysian Government Securities (MGS), Money market instruments and property. Under this particular Act, EPF will be required to invest at least 70% of its total investment in the government securities. Besides the term and conditions that have been mentioned, there are also other guidelines that have been provided by the Ministry of Finance in terms of the specific ceilings of the respective asset allocation. According to the EPF Act 1991, EPF will be able to invest in the stocks as well as the shares; however under the present policy EPF will not be able to invest more than 25% of its investment funds in equities. Section 26 of the EPF Act 1991 that provides the guidelines for such investments must be adhered by EPF.
What are the key factors that will be used to determine the level of the dividends?
There are 2 key factors that will determine the level of dividends and they include the total value of the contributions at that particular time and the net income of EPF for the year. The rate of the dividend of the dividend percentage for the year is calculated as follows;
Net Income/The total value of the contributions X 100
While there is an increase in the net income in any one year, there will also be an increase in the number of the contributions and the contributors, however this will not automatically mean that there will be more dividends. The EPF Board will make the recommendation on the rate of the dividend that will be paid out to the members while the Minister of Finance will give the final approval on this particular matter. According to the EPF Act, the minimum dividend rate that is payable to the members cannot be less than 2.5%.