Father Sez

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Reducing EPF contributions – Is our Government doing the right thing?

Wednesday December 17th, 2008 by fathersez

Malaysian employees have a compulsory savings scheme, the Employees Provident Fund. Legislated under the Employees Provident Fund Act 1991, all Malaysian employers must contribute 12% of the monthly gross salary whilst the employee contributes 11%. The contribution is done monthly and the Employees Provident Fund invests these contributions and pays a dividend yearly to the employees’ accounts.

The percentage contributions have varied over time and so too have the dividend rates 

The EPF is the bedrock of retirement savings for most Malaysian employees. The more financially literate ones plan and prepare better, using other investment vehicles in addition to their EPF. The EPF also allows for withdrawals by contributors to invest in approved unit trusts. (If the units are sold before retirement age, the money goes back to the EPF account of the contributor). 

In November 08, the EPF announced that it was reducing the requirement for employees’ contributions to 8%. This is to be effective from January 09 – December 10 wages / salaries. The intention was to assist the contributors by increasing their disposable income and to help stimulate the economy.  

Much has been written in the Malaysian Press about the general inadequacy of retirement savings by the Malaysian public. The EPF itself has acknowledged that the average Malaysian uses up his EPF retirement savings within 3 years of withdrawal.  This move to reduce the contribution has been welcomed by many in the lower income groups. The very same group who would most probably best benefit from higher EPF savings. The objections have also been many. 

So why is the Government allowing this reduction? Is the Government showing its concern and trying to alleviate the economic suffering of the Malaysian public?  

I don’t know. Presently I don’t contribute to EPF, now that I am no longer a working stiff. Had I been so, I would have maintained the 11%, especially since the savings would have a great compounding effect. 

There must be Malaysians who welcome the additional 3% in their take home pay. I am not belittling them at all. I am just urging them to think a little deeper to see if there are expenses that they can eliminate rather than to reduce this savings.  I hope that the younger generation reflect upon the compounding effect of this 3% and just how much it would grow into should it remain in the fund for 10, 15 or 20 years. It might be better for them to trawl their expenses to see what could be eliminated.  

The EPF is supposed to be a champion for savings and not spending. The move to reduce the contribution certainly seems anti saving. The EPF has even made it easier for the reduction by asking those who want to remain at 11% to fill in forms to confirm their stand. At the very least, the EPF should have made it easier to retain the 11% and asked those who wanted the 8% to fill up the forms.  

I hope my daughters read this post and do the right thing! 

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3 Comments for “Reducing EPF contributions – Is our Government doing the right thing?”

by kit
On December 17, 2008
At 11:51 pm

By reducing employee contribution to 8%, that’s means employee got more cash to spend. However, certain group of employee income will fall into taxable bracket. Overall it doesn’t help much to the situation.

by Mr. Children24
On December 18, 2008
At 9:43 am


by MissXynix
On December 19, 2008
At 8:11 am

NO NO NO…(following amy winehouse tune)


Papa Sez ive already filled in the form but i wonder why they are implementing it only on february 2009..hmmn

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