
The Employee Provident Fund (EPF) was set up by the government to help the Malaysian workforce save for their retirement and pay for other important things that will ensure our wellbeing during retirement such as a home, education and medical expenses.
The way EPF works is that employees contribute a percentage of their salary to the fund every month and at the same time, employers will contribute another percentage of the employees’ salary to the fund. The government provides a guaranteed dividend of at least 2.5% p.a. on the contributions to help them grow. Over the last decade, EPF has been delivering annual dividends of more than 5.0%, with the fund having recorded a dividend of 5.5% for the year 2023.
In addition, EPF members can also claim tax relief for their contributions to the fund and are entitled to compensation payouts in the event of incapacitation or death.
Read Also: Guide To EPF i-Saraan Contribution For Gig Economy Workers
Types Of EPF Accounts And Their Unique Purposes
Recently, the government announced a new EPF account structure that consists of three accounts: the Retirement Account, Wellbeing Account and Flexible Account.
Previously, there were only two EPF accounts namely Account 1 and Account 2.
The Retirement Account and Wellbeing Account serve functions that are similar to those of the former Account 1 and Account 2 respectively.
The Retirement Account provides income for members during their retirement while the Wellbeing Account covers financial needs related to the wellbeing of members during their retirement.
The new Flexible Account addresses members’ immediate financial needs where savings in the account can be withdrawn for any purpose at any time. The Flexible Account will be available for members under the age of 55.
The restructuring of the EPF accounts came as some Malaysians seek to have the option to withdraw their savings during difficult times. Previously, a total of RM145 billion in EPF savings were withdrawn via special withdrawal schemes that were introduced during the pandemic to help individuals who were struggling with paying their living expenses.
How EPF Contributions Work?
Every month, employees contribute a percentage of their earnings to EPF. Employees don’t have to do anything as employers are the ones who need to make sure that monthly contributions are deducted from employees’ salaries each month and sent to EPF.
Aside from that, employers also need to make a monthly contribution on the salary of their employees. The contributions will be deposited into the employees’ EPF accounts.
The contribution rates vary depending on the age and salary of the employee.
What Are The EPF Contribution Rates?
Every month, employees contribute up to 11% of their salary to the EPF while employers need to contribute up to 13% of employees’ salary.
The contribution rates may differ according to the age and salary bracket of employees. Employees who have reached the retirement age of 60 and above, do not have to contribute to EPF.
EPF Contribution Rates For Employees & Employers
Employees Aged Below 60 | Employees | Employers |
Earns a salary < RM5,000 | 11% | 13% |
Earns a salary > RM5,000 | 11% | 12% |
Employees Aged 60 And Above | Employees | Employers |
Earns a salary < RM5,000 | 0% | 4% |
Earns a salary > RM5,000 | 0% | 4% |
The contribution rates for employers differ according to the salary of employees aged below 60. Employers are required to make a higher contribution of 13% for employees who earn less than RM5,000. Meanwhile, employers contribute 12% of employees’ salary for workers who earn more than RM5,000.
How Much Of EPF Contribution Goes Into Each Account?
Starting from 11 May 2024, the EPF accounts for members under the age of 55 will be restructured from two accounts into three. The existing balances in the former Account 1 and Account 2 will be transferred to the new Retirement Account and Wellbeing Account, respectively. The Flexible Account will begin with a balance of RM0.
Contributions will be allocated as follows:
Accounts | Allocation |
Retirement Account | 75% |
Wellbeing Account | 15% |
Flexible Account | 10% |
In addition, from 11 May 2024 to end of August 2024, members will get a one-time option to transfer a portion of their savings from the Wellbeing Account to the Flexible Account as an initial amount.
The transfer will be conducted as follows depending on the balance in your Wellbeing Account:
Members | |
Members with a balance of > RM3,000 in Wellbeing Account |
|
Members with savings of < RM3,000 in Wellbeing Account |
|
Annual dividend rates for all three EPF accounts will be the same.
Can You Contribute More To EPF?
Employees or employers can apply to contribute more than the mandatory contribution rates to EPF.
Employees can contribute up to 89% of their salary more than the mandatory rate. Meanwhile, there is no maximum limit to how much employers can contribute in excess.
Employees who are interested in contributing more than the mandatory contribution rates may complete and submit a KWSP 17A form or KWSP 18A form to their employers.
Meanwhile, employers who wish to contribute more do not need to submit any forms. Instead, they will have to submit the contribution rate details via EPF i-Akaun.
Read Also: Guide To Investing In Malaysia’s Private Retirement Scheme (PRS)
Follow Us On Telegram & Instagram!
Join our Malaysia Telegram channel (@dollarsandsensemy) and follow our Malaysia Instagram Page (@dnsmalaysia) as we bring you the latest finance content in Malaysia!
