
Once you start earning a salary, you will be introduced to the concept of retirement or pension contribution. Depending on the country you work in, the retirement schemes and benefits will differ but their objectives are largely similar – to help you save for the future so that you have something to fall back on during retirement.
For those working in Singapore and Malaysia, there’s the retirement provident fund. It’s compulsory for every working adult to contribute a percentage of your monthly salary to the fund. In Singapore, it’s called the Central Provident Fund (CPF) and in Malaysia, the Employee Provident Fund (EPF). Note that foreigners working in these countries are not required to contribute.
In addition to your contribution, your employer is also required to contribute. After contributing to the fund, the money will earn a return with the objective to grow your retirement savings. Both the CPF and EPF guarantee a minimum interest/dividend rate of 2.5% per year to its members. To encourage saving for retirement, when you contribute to the funds, you get tax reliefs while returns are tax-exempted.
Although the CPF and EPF are both retirement schemes that share some similarities, there are several notable differences as well.
#1 Contribution Rates For CPF Changes Over Time While EPF Contribution Rates Do Not Change
For starters, the mandatory contribution rates for CPF and EPF are different. For the EPF, Employees contribute 11% of their monthly salary while employers contribute 13% for salaries that are RM5,000 and below or 12% if the salary is above RM5,000 . These percentages are fixed throughout your entire work life.
Mandatory contribution rates for CPF are relatively higher at 20% for employees and 17% for employers. Also, contribution rates to the CPF change with age, specifically decreasing once you’re above the age of 55 years old.
#2 CPF Has Dedicated Accounts For Specific Purposes
CPF is divided into three accounts namely the Ordinary Account (OA), MediSave Account (MA), and Special Account (SA) that will cover all the basic needs of retirement. Savings in the OA can be utilised for home purchases and education funding. MA is dedicated to medical expenses such as hospitalisation fees and insurance premiums. Meanwhile, SA is usually reserved for your retirement savings.
The EPF is divided simply into two accounts, Account 1 and 2. Out of your total mandatory contribution, 70% of it goes into Account 1 and 30% goes into Account 2.
You can’t make early withdrawals from Account 1, but you may withdraw your EPF savings from Account 2 for certain purposes such as purchasing a home, funding medical emergencies, and so forth.
#3 Fixed Interest Rates For CPF, Fluctuating Dividend Rates For EPF
For CPF, interest rates are predetermined, similar to how it’s like when you place your money in a fixed deposit account. Regardless of the performance of financial markets or the global economy, you will enjoy fixed interests that are guaranteed by the government.
CPF interest rates differ among the three accounts. The interest rate for OA is fixed at 2.50% while interest rates for SA and MA are higher at 4.0%.
Since its inception in 1952, EPF has consistently yielded an annual dividend rate higher than that of 2.5% and EPF has managed to record a dividend rate of more than 5% since 2009. As it invests in a diverse portfolio encompassing local and international assets, EPF dividends do fluctuate depending on market performance. Unlike CPF, the interest rate for both Account 1 and 2 will be the same.
Year | Past Dividend Rates Over 10 Years
(2012 – 2021) |
|
Shariah | Conventional | |
2021 | 5.65 | 6.10 |
2020 | 4.90 | 5.20 |
2019 | 5.00 | 5.45 |
2018 | 5.90 | 6.15 |
2017 | 6.40 | 6.90 |
2016 | – | 5.70 |
2015 | – | 6.40 |
2014 | – | 6.75 |
2013 | – | 6.35 |
2012 | – | 6.15 |
Do note however that the guaranteed minimum dividend rate for the EPF is 2.5% per year on members’ savings.
#4 Early Withdrawal Rules And Benefits
Although the CPF and EPF are designed mainly for supplementing your retirement savings, there are instances where one can make partial withdrawals to fund important purchases or for emergencies.
For instance, if you’re looking to buy a residential property, savings in your OA can be utilised to do so. After all, it’s important to have a home to call your own in your retirement years. You may also use it to settle your mortgage.
With rising medical inflation, having sufficient protection is vital and using your savings in MA, you can pay for insurance premiums, hospitalisation expenses, a range of outpatient treatments, and more.
Meanwhile, for EPF members who require extra finances to support their home purchase or medical emergencies, they can dip into a single account, Account 2 for various purposes as stated below:
- Property purchase
- Housing loan
- Build a house
- Medical expenses
- Education
- Perform Hajj
#5 Retirement Payout
Upon reaching the age of 55 years old, you will be given the option to withdraw your CPF and EPF savings whether it’s in full or partially.
For EPF contributors, your savings in Account 1 and 2 will be combined and credited into Account 55. If you decide to continue working, all further contributions will then go into ‘Account Emas’ which can only be withdrawn once you reach the official retirement age of 60 years old. You have the option to make a lump sum or partial withdrawal at any time to fund your retirement.
For CPF, a Retirement Account (RA) will be set up for you when you reach the age of 55 years old. Similarly, you’re given the flexibility to withdraw your savings in CPF either in partial or full amount with the condition that you’ve set aside a required retirement sum in RA. That sum will then be used to apply for CPF Life which supplies you with lifelong monthly payouts after the age of 65, similar to a pension scheme as opposed to a lump sum payout.
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