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What is the EPF? The Full Guide to Malaysia’s Mandatory Private Retirement Scheme
All employees in the private sector are mandated to contribute to the EPF for their retirement, here is a full guide to everything you wanted to know about the EPF and what you can hope to expect upon retirement.
NOTE: This is not an article about the newly launched (as of 18th July 2012) voluntary Private Retirement Scheme (PRS), the review for this in our PRS Guide.
EPF Quick Navigation
What is EPF?
What are Employees / Employers Responsibilities?
Who is Mandated to Contribute to the EPF? Can I Contribute Voluntarily?
What Types of Income are Included for EPF Deductions?
What is the Rate of Contribution to the EPF?
Voluntary Excess Contributions to the EPF
How are my contributions paid?
EPF: Features
What is the 1st Account and 2nd Account?
Investment Allocation
Check EPF Account Balance
EPF Contribution Calculator and Final Balance Estimator
What is the Employees Provident Fund (EPF) / Kumpulan Wang Simpanan Pekerja (KWSP)?
The Employees Provident Fund Act 1991 (Act 452) provides retirement benefits for members of the EPF through management of their savings contributions. The EPF (also called the KWSP) is a social security institution which administers their members retirement fund using a defined contribution plan. This is different from a government pension which is a defined benefit retirement plan.
The main difference is that with the EPF, your final payout is determined by the contributions (from both you and your employer) and the investment returns, and with a public pension the final payout is fixed and your pension becomes a liability to the Public Services Department.
What are Employees / Employers Responsibilities?
When you work for the first time, it is your employer’s responsibility to register you with the EPF. Your employer will be required to complete Form KWSP 3 with your personal details and signature as stated in your National Identity Card, with the your assistance.
Your employer should register you as an EPF member as soon as you are employed for the first time to ensure that your EPF contributions can be paid within the stipulated period. For example, if you are employed on 1st January, your employer should register you at the beginning of that month, so that your salary for that particular month can be deducted and paid to the EPF as the first contribution not later than 15th February.
You only need to be registered as an EPF member once, when you change your employer you should inform them of your existing membership of the EPF by giving them your EPF number.
Who is Mandated to Contribute to the EPF? Can I Contribute Voluntarily?
With a few exceptions, all individuals who work for a wage in the private sector (or in a non-pensionable role in the public sector) are required to make EPF contributions. They include:
- Directors who receive wages;
- Part time, temporary and probationary employees;
- Employees are to contribute until the age of 75 years old if they are still working regardless whether they have or have not made the full withdrawal/part of it after attaining the age of 55 years old;
- Employees who have withdrawn their savings under the Pensionable Employees and Optional Retirement Withdrawal, and work with employers other than the Federal or State Governments, or any statutory bodies or local authorities;
- Employees who have previously made full withdrawal under the Incapacitation Withdrawal and have since recovered and are re-employed in any service.
There are two categories of individuals who are not required to contribute but may opt to do so:
Malaysian citizens
- If you are a domestic servant employed in a residential home and whose wages are paid by an individual (the house owner), you may opt to contribute by submitting a notice of election to contribute using Form KWSP 1 (MAJ). A copy of the form must be submitted to the EPF and another copy to the employer.
- If you are a self employed and opt to contribute voluntarily, you must first register as an EPF member by completing Form KWSP 3. Contributions can be made using Form KWSP 6A(1). The minimum contribution payment amount is RM50 and there is no maximum rate effective 1 January 2011.
Non-Malaysian citizens
If you are a foreign worker who is employed and staying in Malaysia legally, you may submit a notice of election to contribute using Form KWSP 16B and register as an EPF member using Form KWSP 3. You must submit a copy of the Form KWSP 16B to the EPF and another copy to the employer.
What Types of Income are Included for EPF Deductions?
In general, all payments which are meant to be wages are accountable in your monthly contribution amount calculation. These include:
- Salary
- Payment for unutilised annual or medical leave
- Bonus
- Allowance (except travelling allowance)
- Commision
- Incentive
- Arrears of wages
- Wages for maternity leave
- Wages for study leave
- Wages for half day leave
- Other payments under services contract or otherwise
Payments not liable for EPF contribution:
- Service charges
- Overtime payment
- Rewards (in kind)
- Retirement benefits
- Retrenchment, temporary and lay-off termination benefits
- Any travelling allowance or the value of any travelling concession
- Payment in lieu of notice of termination of employment
- Director’s fee
What is the Rate of Contribution to the EPF?
Employees below 55 years of age
For employees earning below RM5,000, the portion of employee’s contribution is 11% of their monthly salary while the employer contributes 13%. For employees who receive wages/salary exceeding RM5,000 the employee’s contribution of 11% remains, while the employer’s contribution is 12%.
Employees between 55 years and 75 years of age
For employees who receive wages of RM5,000 and below, the employer’s new share contribution rate is 6.5% (increase of 0.5%). For employees who receive wages of more than RM5,000, the employer’s share contribution remains at 6% subject to the total of wage.
Voluntary Excess Contributions to the EPF
If you or your employer intends to contribute at a rate which exceeds the Statutory Rate, either you or your employer may do so by giving a notice of your intention to the EPF.
To do that, your employer is required to complete Form KWSP 17 (Employer) while you are required to complete Form KWSP 17A (Employee) . This new rate will be your new Statutory Rate. Upon receipt of the notification, your employer is required to comply with it. The EPF will instruct your employer to comply with the notice.
How are my contributions paid?
Your employer must contribute part of your wages together with the employer’s share to the EPF according to the rates specified under the EPF Act 1991. The contributions must be paid monthly. To do this, your employer has to deduct part of your wages before the wages are paid to you. This deduction, together with the employer’s share, must reach the EPF before the 15th day of the following month. If your employer sends the contributions later than the specified date, your employer will be fined by the EPF. It is an offence under the EPF Act for your employer not to deduct your wages and not to remit the contributions to the EPF after deduction has been made on your wages.
For example, if your deductable wage was RM2,000 a month:
Net amount to employee after EPF deduction: RM1,780 (ie. 100%-11% = 89% of deductable wage)
Employee Contribution: RM220 (11% of deductable wage)
Employer Contribution: RM260 (13% of deductable wage)
Amount payable to EPF by employer: (RM220 + RM260) = RM480
Some Features of the EPF
Dividend
Your contributions kept in the EPF will accumulate and draw dividends every year. Thus, your savings will increase from year to year until you retire and withdraw all your savings. The EPF act guarantees a minimum of 2.5% Dividend annually.
Tax Incentive
Your share of contributions to the EPF is tax deductible up to RM6,000 (inclusive of life insurance premiums). In addition, the savings that you withdraw under the various withdrawal schemes are also exempted from income tax. To see this at work you can check out our Malaysia Personal Income Tax Guide and our Malaysia Income Tax Calculator 2012.
Retirement Benefit
Your EPF savings are meant for your retirement. When you contribute 11 percent of your monthly pay to the EPF, your employer will contribute (at least) another 13 percent to your EPF savings. If you do not contribute, you do not get that additional retirement benefit provided by your employer.
Death And Incapacitation Benefit
EPF also provides compensations should certain unfortunate events befall onto its Members. In this regard, the EPF provides Incapacitation Benefit to the member and Death Benefit payable to the member’s dependent.
These benefits are additional payments for Incapacitation Withdrawal and Death Withdrawal as a compassionate gesture. The payments are made using EPF’s own income, and are not part of Member’s savings:
An amount of RM5,000 is payable to you if you are eligible to withdraw all your savings on being incapacitated. The payment will be made to you after you have received the payment for withdrawal of your savings.
This benefit amounting up to RM2,500 is payable to your dependent in the event of your death. This benefit will be paid to your dependent, subject to consideration by EPF.
What is the 1st Account and 2nd Account?
Your EPF Account is where all your monthly contributions and that from your employer are credited into.
Effective 1 January 2007, the Account is divided into two parts, namely Account I and Account II. Contributions received on your behalf from your employer will be credited into the two accounts according to the following percentages:
Account I – 70% of monthly contribution
Account II – 30% of monthly contribution
These accounts are created for different purposes, and different types of withdrawals are applicable on each accounts:
Account I
Savings in this account is meant to be used for your retirement, and it cannot be fully withdrawn before you reach the age of 55, become incapacitated, leave the country or deceased (payment will be made out to your nominee / heir). When you attain the age of 55, you may choose to either withdraw the full amount in a lump sum (including any balance in Account 2), a partial amount larger than RM2,000, or withdrawal into a monthly payment scheme to stagger your payments.
You are allowed to invest part of the balance in Account 1 in your own investments at your own risk at any time in your life. This part is 20% of the excess between your Account 1 balance and a predetermined Basic Savings Level based on your current age. For the list of Basic Savings Levels click here.
For example, the Basic Savings Level for a 30 year old is RM18,000, this means that you may withdraw 20% of the difference between your current Account 1 balance and RM18,000. If you had RM50,000 in your Account 1 balance, this would mean you can withdraw RM6,400 (this is 20% x [RM50,000-RM18,000]) to be invested in funds managed by Approved Fund Management Institutes, see full list here.
Account II
Savings in this Account is meant to help you to make early preparations for a comfortable retirement. Full/partial withdrawals are allowed prior to the age of 55 for the purposes of:
- Attaining the age of 50 years;
- Owning a house – the downpayment for your first house;
- Settling the balance of your housing loan – first house;
- Financing education for you and that of your children’s;
- Medical expenses for you and that of your children’s
Investment Allocation
Your monthly contributions are invested in a number of approved financial instruments to generate income. They include Malaysian Government Securities, Money Market Instruments, Loans & Bonds, Equity and Property.
Check EPF Account Balance
You can check your EPF Account balance at various EPF kiosks located at some Public Bank and RHB Bank branches, as well as any EPF office across Malaysia.
You can also check your EPF Account balance online at the KWSP website after obtaining an Activation PIN from the EPF kiosks or EPF office directly.
EPF Contribution Calculator and Final Balance Estimator
Not sure whether you are contributing the correct amount? Want to get an estimate of your final EPF balance based on your current and expected future contributions? See the SaveMoney.my EPF Calculation Tool.
The SaveMoney.my EPF Calculation Tool
All information used for analysis in this article is gathered from the official EPF website, while we are not responsible for any inconsistencies do let us know if you spot any errors by emailing theeditor@savemoney.my
