The Employee Provident Fund (EPF) is a retirement scheme set up by the Malaysian government to help people save for their golden years. Aside from EPF, there’s the public pension scheme. EPF members consist of mostly employees working in private companies or organisations while the public pension scheme is an option that is also available for civil or government servants.
EPF members make monthly contributions deducted from their salaries to EPF which will be invested to earn dividends on their behalf. At the retirement age of 60, their total EPF savings will be made accessible to them.
Meanwhile, those who subscribe to the public pension scheme are not required to make any contributions and will receive monthly pension that equals to a percentage of the last drawn salary upon their retirement. The public pension scheme is deemed as a coveted benefit of being a government servant that comes with other perks as well.
Government servants in Malaysia can choose either the public pension or EPF as their retirement scheme. But which should you choose? Here are five key differences on how EPF differs from the public pension scheme.
#1 Public Pension Is Part Of Civil Service’s Retirement Benefit
There are several notable differences between being part of the civil service as opposed to holding a job in the private sector. The civil service in Malaysia comprises of federal and state public service, judiciary and legal service, education service, police as well as armed forces.
When first hired as government servants, employees will first be placed under the EPF scheme until they receive confirmation which could take up to three years. Following confirmation, employees can choose to switch to the pension scheme.
Civil servants who resigned or are dismissed will not receive the public pension. In other words, civil servants are required to complete their service until retirement, and as an appreciation for their long-term service, are rewarded with public pension. Meanwhile, employees in private sectors are able to apply for jobs with other companies and choose to leave without any repercussions to their EPF retirement fund since this is tied to them as an individual.
#2 Employees Self-Contribute To EPF To Save For Retirement
Every employee in the private sector contributes 11% of the monthly salary to his or her EPF accounts. The more you contribute to the account, the more your retirement savings will be.
On top of that, employers of private companies are required to contribute 13% of an employee’s salary for staff that are paid RM5,000 and below. Employers contribute 12% of the employee’s salary for wages above RM5,000. The savings are then invested by EPF to give members a minimum dividend of 2.5% or more every year.
The pension scheme is part of the employment benefits of working in the public service. The pension fund originates from the federal government and is then managed and invested by Kumpulan Wang Persaraan (KWAP).
#3 EPF Members Can Make Partial Or Full Withdrawal
When EPF members reach the age of 55, their savings in Account 1 and 2 will be combined into Account 55 which they then can withdraw partially or in full. If they choose to continue working, their contributions will be credited into Account ‘Emas’ which is accessible once they reach the retirement age of 60. They also can make early withdrawals from Account 2 to fund property purchases, settle mortgage, build a house, education, and haj performance.
For pensionable civil servants, they will be entitled to a service gratuity, a once-off payment once they complete their period of service. The service gratuity is calculated based on the formula below:
Length of service in months x Last basic salary x 7.5% = Service gratuity
On top of that, they will also receive a monthly pension. For those who have been in service for more than 30 years, the monthly pension will be 60% of the last basic salary:
Last basic salary x 60% = Monthly pension for those who served more than 30 years
Civil servants who have a length of service of less than 30 years will get a monthly pension calculated with the following formula:
Length of service (in months) x Last basic salary] ÷ 600 = Monthly pension for those who served less than 30 years
For example, John has worked at the customs department for 32 years. His last drawn salary is RM7,000. Upon his retirement at 58, he will be awarded with the following.
Service gratuity
384 months x RM7,000 x 7.5% = RM201,600
Monthly pensions
RM7,000 X 60% = RM4,200
Meanwhile, Siti has taught at a public institution for 28 years. Her last drawn salary is RM7,000. She will receive the following upon her retirement.
Service gratuity
336 months x RM7,000 x 7.5% = RM176,400
Monthly pensions
[336 months x RM7,000] / 600 = RM3,920
Retirement age for pensioners vary from 55 to 60 years old. However, civil servants can apply for optional retirement once they reach the age of 40 as well provided that they have accumulated 10 years of service. The payout of service gratuity will be made on the date of retirement but monthly pensions will only commence a few years after.
In the case of a civil officer is appointed before 12 April 1991, the officer will be eligible for pension payments upon reaching the age of 45 years for women or 50 years for men. If the civil officer is appointed after the date stated, monthly pension payment shall commence when the officer reaches the age of 55 years for both women and men.
Civil servants can also opt to retire due to poor health provided that the health condition is confirmed, decided by the medical board or approved by the Public Service Department.
Read Also: Malaysia EPF: How Dividend Yield Is Derived And Calculated
#4 EPF Dividends Rely On Investments’ Performance
As a national retirement scheme, EPF is required to give its members a guaranteed dividend rate of 2.5% every year. So far, with an overall investment asset that stands at RM1.04 trillion as at March 2023, EPF has always managed to deliver above the required dividend rate. The dividends depend on how well its investments are performing but the bottom line is members are guaranteed a dividend rate of 2.5%.
Meanwhile, monthly pension amounts are fixed by calculation of the income and length of service. The government does make adjustments to the monthly pension scheme. In 2013, the government implemented 2% annual increments for pensioners.
#5 EPF vs Public Pension Benefits
The public pension scheme comes with extensive medical benefits – an additional reason why civil positions are vied by many. Pensioners can claim expenses for various medical treatments and tools as shown below:
- Supply of medical drugs
- Medical tools/device
- Kidney treatment
- Expert services at any private hospital
- Emergency treatment at any private hospital
- Sterility treatment
- Treatment at IJN hospital
- Treatment in foreign countries
These medical benefits are extended to immediate family members namely spouse and children up to a certain age, with the exception that if children have brain defects or physical disabilities, the benefits will be valid for them for a lifetime.
In addition, pensioners also enjoy priority privilege at government hospitals.
Aside from medical benefits, family members of pensioners will also be given an ex-gratia payment upon the death of a pensioner while fulfilling his or her duties.
For EPF members, there are tax benefits that come with contributing to the fund. You will get a tax exemption up to RM5,000. EPF earnings are also exempted from tax. EPF members will also be given a lumpsum amount of RM5,000 in the event of disability and are required to withdraw all their savings. Should a EPF member pass away, their dependents will get a death benefit of RM2,500.
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