10 Things you didn’t know you can do with EPF—plus how to grow your savings
Make money (work)
Congratulations, you’ve landed your first full-time job! Now what?
If this sounds like you, first and foremost, welcome to the workforce. We wish you the best of luck in your career and adulthood. For the rest of you who have laboured a little longer, stick around—there may be a few pointers ahead that will interest you in terms of planning your finances.
Regardless of where you stand in your career right now, it’s never too early to start thinking about savings and retirement. This is why it’s compulsory for Malaysian employees in the private sector and those in non-pensionable posts in the public sector to contribute to EPF. To help enlighten you on the subject and empower your financial decisions, here’s everything you need to know about EPF.
What is EPF?
The Employee Provident Fund, or EPF in short, is a retirement savings scheme that is managed and administered by the Central Board of Trustees. The board consists of representatives from three parties, including employees, employers, and the government. The main goal of EPF is to grow its members' retirement savings while continuously developing a wide range of products and services to support their journey towards a comfortable retirement.
From January 2021 to June 2022, the minimum monthly contribution rate for employees is fixed at 9 per cent to increase money in the hands of Malaysians amidst the Covid-19 pandemic. Employees may also inform their employers should they choose to retain the original 11 per cent monthly contribution rate. After this period, the minimum contribution rate will automatically revert to the original rate.
On top of that, employers are required to contribute either 12 per cent (for wages below RM5,000 per month) or 13 per cent (for wages above RM5,000 per month) of an employee's pay to their EPF. The total contributions and dividends will be divided into two accounts: 70 per cent goes into Account 1 and 30 per cent into Account 2. (More on this later).
How do I apply to become an EPF member?
Becoming an EPF member is automatic once the EPF receives the first contribution in your name (based on your Identification Card details) from your employer. Alternatively, you may register yourself via post or at the EPF counter with Form KWSP 3.
Once you have your EPF number (this is usually included in your pay slip), it’s advisable to sign up for an online account, known as i-Akaun. This saves you the trouble of making the trip to the EPF office to make withdrawals, update personal information, or check statements. You can either access your account on the EPF website or via the i-Akaun app on the App Store and Google Play.
To register for an i-Akaun, you will need to first obtain a one-time activation code from an EPF kiosk or counter then proceed to the login page on the EPF website to complete your registration.
What are the benefits of EPF?
As mentioned, the main goal (and therefore, benefit) of EPF is to ensure Malaysians are prepared for retirement. After all, who wants to be working for the rest of their lives? Based on the average Malaysian's life expectancy, the minimum targeted Basic Savings for EPF members is RM240,000 by the age of 55. This amount is considered sufficient to support your *basic needs* for up to 20 years after retirement. Bear in mind that it does not account for lavish lifestyles, which will only increase the target amount of funds in your balance.
According to the EPF table of basic savings, this is the minimum targeted amount of savings members should have according to their age:
|Age||Minimum Savings in EPF|
|30 years old||RM35,000|
|40 years old||RM86,000|
|50 years old||RM175,000|
|55 years old||RM240,000|
Aside from retirement, there are several additional benefits of your EPF contributions:
- Dividend Earnings: The EPF guarantees annual minimum dividend earnings of 2.5 per cent, although the average for the past 10 years has been around 5-6 per cent. At this rate, your savings will be protected from inflation
- Death Benefit: The next-of-kin or dependent of EPF members may be given a death benefit of RM2,500 if the member has not reached the age of 60 (subject to consideration and other conditions by EPF)
- Incapacitation Benefit: RM5,000 will be provided to eligible members who apply for Incapacitation Withdrawal and are unfit to work (subject to consideration and other conditions by EPF)
- Tax Exemptions: Your contributions are tax deductible up to a maximum of RM6,000 per year which is inclusive of your life insurance premium. In addition, dividend earnings from EPF investments are also tax-free!
What can I do with my EPF savings/when can I make a withdrawal?
While EPF is primarily a savings scheme for your retirement at the age of 60, members may choose to make partial withdrawals for specific needs before reaching retirement age. This is usually made from Account 2 without affecting your savings in Account 1, in order to safeguard your retirement funds. However, members may also be eligible for full withdrawals from both accounts under certain circumstances.
Here are 10 things you can do with your EPF savings:
- Pay for education: Members may make withdrawals from Account 2 to help finance their own, children, spouse and/or parents’ education at approved institutions locally or abroad
- Buy a home: Members may make individual or joint withdrawals with their spouse/family member to finance the purchase of a house
- Build a home: Members may make individual or joint withdrawals with their spouse/family member to finance the construction of a house
- Reduce/Redeem housing loans: Members may make withdrawals from Account 2 to reduce/redeem their housing loan balance or assist a spouse with paying off theirs
- Perform Hajj: Muslim members may make withdrawals from Account 2 to supplement their savings at Lembaga Tabung Haji (LTH) for hajj expenses
- Cover health expenses: Members who face medical problems may make withdrawals from Account 2 to help cover the medical expenses for approved illnesses and/or healthcare equipment as well as fertility treatment
- Enjoy retirement: Upon reaching the age of 55, the total EPF savings from Account 1 and Account 2 will be consolidated into Account 55. Members may withdraw all or part of the savings from this account at any time. For those who choose to continue working after the age of 55, all further contributions will be credited into their Akaun Emas, which may be withdrawn only upon reaching the age of 60
- Stay protected during incapacitation: In the event that a member becomes deprived of their ability to work (must be certified by a medical practitioner), they may withdraw all of their EPF savings in Account 1 and 2. In addition, eligible members will be given RM5,000 as an Incapacitation Benefit
- Leave the country: Members (which includes Malaysians who have given up their citizenship and PR/expatriates) may withdraw all their EPF savings
- Provide for loved ones: In the event of a member’s untimely death, the nominated beneficiaries or next-of-kin may withdraw their EPF savings and be considered for the RM2,500 Death Benefit
How can I grow my EPF savings?
It is a common misconception that you can only contribute to or grow your EPF savings by earning a bigger paycheck. While earning more definitely helps, you can also contribute to your EPF in other ways:
You can opt to contribute to your EPF savings on top of your existing mandatory monthly deductions. This works for those who are formally employed as well as who run their own businesses, such as full-time freelancers. There is no minimum contribution amount, but there is a maximum of RM60,000 per year. Click here for more details.
Besides contributing to your EPF, members can invest in it too. Under the Members Investment Scheme (MIS), those with sufficient savings can transfer a part of their funds in Account 1 to appointed Fund Management Institutions (FMIs) for investments. However, only 30 per cent of the excess amount required for Basic Savings can be withdrawn and invested, which varies according to age. In addition, the minimum withdrawal amount is RM1,000, so if you have not reached that investment amount threshold yet, you won’t be able to invest. Click here to calculate if you are eligible or to find out more.
Through i-Saraan, members below 60 years old who are self-employed or do not earn regular incomes can make voluntary EPF contributions and enjoy an additional 15 per cent contribution from the government (maximum of RM250 per year). This is ideal for gig workers as there is no minimum contribution and members will also be able to earn an annual EPF dividend on their retirement savings. Click here for more information.
- Kasih Suri Keluarga Malaysia KWSP (i-Suri)
Under the i-Suri EPF contribution, a housewife or the husband to an eligible spouse may contribute RM5 per month or RM60 per year into the former’s EPF account. Benefits include a government contribution of RM480 per year, an annual EPF dividend, plus incapacitation and death benefits. Click here for more information.
- Top Up Savings Contribution
Finally, you may also contribute to a loved one’s EPF account (or request for a family member to contribute to yours). Parents may choose to be a Topper for their child (Toppee) and vice versa. Similarly, a husband may contribute to his wife’s EPF account and vice versa. The Toppee must be an EPF members aged below 55 years old, but the Topper does not necessarily have to be an EPF member. Toppers can only make contributions in cash (maximum RM500) or cheque at EPF counters, up to a maximum of RM60,000 per year.
For more information about EPF, visit the website.