The Kumpulan Wang Simpanan Pekerja or the Employees’ Provident Fund is the bedrock of retirement savings for countless Malaysians. Introduced by the government, this mandatory savings scheme utilises a percentage of your monthly salary to build a retirement fund. Your employer also contributes a certain amount towards your EPF savings every month.
Some could argue that it might be more convenient to use your EPF fund to pay for your current requirements rather than save for later. Well, we disagree. Yes, your EPF fund may not be sufficient to single-handedly sustain you and your loved ones during your post-retirement years, but an untouched fund can definitely form the foundation of your entire retirement savings on which you can build other savings and retirement funds.
It is in this context the new government’s proposed changes in Budget 2019 pertaining to EPF become hugely significant. Let us take a look at 5 such crucial EPF-related changes that you must be aware of.
1. Separate tax reliefs for EPF and life insurance
The previously combined tax relief of RM6,000 for EPF and life insurance/takaful will now be split into two separate tax relief brackets. As per the new policy, the tax relief allocated for EPF contribution will be RM4,000 p.a. and RM3,000 p.a. for life insurance/takaful premiums.
With this move, the government wants to encourage Malaysians, especially in the medium to low-income households, to purchase life insurance/takaful policies and secure their future. Currently, the insurance penetration rate in the country stands at 55%. This figure drops further when you look at B40 households. By splitting the tax benefit, the government hopes that people will buy life insurance policies and bring up the percentage of the insured population to 75%.
The split tax benefit could be the motivation factor for you to invest in a life insurance/takaful policy. Instead of saving RM6,000 with just your EPF contributions, you can now save a total of RM7,000 and have the insurance policy as a safety net.
2. Lower employer contribution for employees aged 60 years and above
In another step taken to secure enhanced protection for Malaysian employees, the government has lowered the statutory employer contribution for post-retirees. The contribution rate for employers now stands at 4% p.a. as opposed to 6%. This means that businesses will be able to save 2% of their contribution for each employee aged 60 years and above.
The revised contribution rate applies to those who are regular employees. The change has been implemented to encourage and incentivise companies to hire and retain older workers as part of their payroll.
On the other hand, EPF has also scrapped the minimum contribution for working retirees. Which means workers above the age of 60 are no longer required to mandatorily contribute towards their EPF funds so that they are left with more take-home pay in their advanced years. “Post-retirees who wish to continue saving with the EPF may opt for voluntary contributions instead,” EPF Chief Executive Officer Tunku Alizakri Alias recently said, as reported by the New Straits Times.
3. Minimum EPF contribution revised to RM264 a month to align with the minimum monthly wage of RM1,100
As per the figures released by EPF, 64% of the members aged 54 and above have savings less than RM50,000. This figure is significantly lower than the quantum for EPF Basic Savings. Retirees need to have a minimum of RM228,000 in their EPF’s Basic Savings by the age of 55, and RM50,000 is less than 25% of that amount.
As a result, the EPF has declared that it wants to align both employees’ and employers’ contributions with minimum wages of RM1,100. The new plan states that starting January 1 2019, a minimum contribution of RM264 is expected to be received from every worker who earned monthly wages — in Peninsular Malaysia, Sabah and Sarawak, as reported by The Star.
The revised rate will ensure that your minimum contribution does not dip below a certain minimum while helping you maintain sufficient savings to secure your future.
RM264 per month will give you yearly savings of RM3,136. Assuming you work for 35 years in total, your contribution will mount up to RM110,880. Which is way higher than the current average of RM50,00 even without employer contribution. The EPF said that it will also offer Retirement Advisory Services to help members plan and manage their finances.
4. EPF Basic Savings target increased from RM228,000 to RM240,000
Basic Savings is the minimum amount you need to have in your EPF account according to your age which cannot be withdrawn unless you either migrate to another country or due to an unfortunate incident like disability or death.
The earlier EPF Basic Savings amount for age 55 was RM228,000. The new measure, effective from January 1 2019, will increase that by RM12,000 to reach RM240,000, as reported by Bernama. This simply means that EPF members will have to save RM12,000 more till they turn 55 years, after which they can start withdrawing from their account.
“The EPF said with the revision, members would be required to have higher savings in their EPF account in order to be eligible to participate in the EPF Members Investment Scheme. The investment scheme provides members with an option to have a portion of their EPF savings in Account 1 invested in unit trust funds or via private mandates managed by the appointed Fund Managers Institutions,” the report published in NST added.
5. i-Suri initiative for eligible housewives under e-Kasih scheme
As you might be aware, the government launched the i-Suri initiative to offer a financial safety net for target groups of women who belong to poor and bottom lower-income households.
Under the scheme, the government will contribute RM40 per month for a minimum monthly contribution of RM5 into the EPF i-Suri housewives’ account. The next stage of the scheme will see the government’s contribution increase to RM50. The additional RM10 will be added to the Social Security Organisation after making legislative changes to extend the programme’s benefits to housewives.
“Launched on Aug 15, 2018, it (i-Suri initiative) has received positive response with some 28,963 or 13.29% of eligible housewives registered under the e-Kasih scheme,” the Edge Markets reported.
Taking into account the new changes and initiatives, the EPF has made it easier for Malaysians, across all age groups, to save up for their future. It is necessary to note that the provisions made by the Finance Ministry as well as the EPF have taken into account a higher cost of living for the next generation of retirees.
But the onus of making the best use of these EPF-related changes falls on you. And having clear financial goals in place complemented by loads of discipline and savviness will definitely help you strengthen your financial future.