You must be aware that your contributions (and your employer’s if you’re salaried) to the Employees’ Provident Fund form the backbone of your retirement savings.
Established in 1951, the EPF in its current form is bound by the Employees Provident Fund Act, 1991. It’s a compulsory savings plan for private and non-pensionable public sector employees (both Malaysian citizens and foreigners working in the country), providing retirement benefits to its 13.72 million members, as of September 2017. Public sector employees, on the other hand, have to go for KWAP for their pension benefits.
The EPF invests the monthly contributions of its members in a number of approved financial instruments, like government securities, money market instruments, loans, bonds, equity and property, to generate income, through which it is able to extend annual dividends to its members. As a matter of fact, EPF announced a dividend of 6.90% in 2017 (up by 1.20% from the previous year), and legally guarantees minimum annual dividend of 2.5% p.a.
Having said that, it’s not unusual for people to have certain questions about EPF, especially regarding how much a person can withdraw from his/her EPF account, for which purpose, and at what age.
Here’s an EPF FAQ to answer some of the common queries.
- How much gets credited to your EPF account?
- What are the different types of EPF accounts, and when can you withdraw from them?
- How much income tax relief can an EPF member claim?
- Whom can you nominate to become the beneficiary of your EPF funds?
1. How much gets credited to your EPF account?
Contributions to your EPF account depend on your monthly salary. Current mandatory contribution rates are as follows for people below 60 years.
|Monthly salary||Employee’s contribution||Employer’s contribution|
|RM5,000 and below||11%||13%|
Self-employed individuals can also contribute anywhere between RM50 to RM60,000 in a year to EPF.
2. What are the different types of EPF accounts, and when can you withdraw from them?
This is your main retirement account, where 70% of your total retirement savings get accumulated. You generally cannot withdraw much from this account before retirement, unless you either migrate to another country or due to an unfortunate incident like disability or death.
The EPF has set a minimum amount that you must have in your Account 1 as per your age for every year of your life (from 18 – 55 years). This is called Basic Savings. Here’s a table to show how much Basic Savings you must have in the Account 1 of your EPF at different ages:
|Age||Basic Savings (in RM)||Age||Basic Savings (in RM)|
So you must have the Basic Savings amount in your Account 1 according to your age. A maximum of 30% of the amount in excess of the Basic Savings amount can be invested only into EPF-approved fund management institutions (click here for full the list of approved fund management institutions).
For example, let’s assume you’re 32 years old and have RM50,000 in your Account 1. That means your Basic Savings is RM37,000 that you cannot touch, and RM13,000 is the excess amount. If you want you can invest a maximum of 30% of your excess amount (of RM13,000), that is RM3,900, in the EPF approved institutions.
This is where the remaining 30% of your total EPF savings are stored. Although it is advisable that you try not to withdraw anything from your EPF accounts (for a secured post-retirement life), there are certain crucial scenarios when you can withdraw money from your Account 2.
For housing: EPF members can withdraw funds in Account 2 to build a house, pay for down payment, monthly instalments and principal repayments.
For medical expenses: EPF members can withdraw from Account 2 to fund medical expenses for critical illnesses, both for treatment and to purchase medical equipment for themselves or family members. Having said that, it’s always advisable to get health insurance early to cover your medical expenses.
The Age 50 withdrawal: Members can withdraw the entire amount from their Account 2 when they turn 50. However, you should consider this option mainly as a backup plan and continue depositing funds to your EPF accounts to earn dividends.
For Haj: EPF members can withdraw up to RM3,000 from their Account 2 to visit Haj.
When an EPF member turns 55, the funds in both his Account 1 and Account 2 are combined to form Account 55. A member can withdraw full, or partial, or monthly amount from his Account 55, but can continue his EPF deposits if he/she wants to earn further dividends.
Account Emas is created for members who continue to work from 55 years to 60 years. This is separate from Account 55. While members cannot withdraw any money from Account Emas till they turn 60, they can withdraw any amount from Account 55. Once a member turns 60, Account 55 is also combined with Account Emas, and then a member can make a complete or partial withdrawal.
3. How much income tax relief can an EPF member claim?
An EPF member can claim income tax relief of up to RM6,000 (combined with total life insurance premiums) in a year.
4. Whom can you nominate to become the beneficiary of your EPF funds?
Every EPF member can nominate any human being(s) as the beneficiary of their EPF savings upon their demise and can allocate which nominee will receive what percentage of total funds.
However, Muslim EPF members must nominate an administrator (wasi) who will distribute the funds according to the percentage of allocation to the nominees as per the Faraid law. Non-Muslim members can nominate any human beings. It must be noted that an EPF member cannot nominate an organisation or a society as a beneficiary, but only human beings.
Experts point out that every EPF member should nominate their immediate family members like spouse and children as the beneficiaries. A report published on December 28, 2016, stated that 10.6 million EPF members were yet to nominate their beneficiaries. This at times leads to long legal disputes among family members as they stake claim to the savings after the EPF member’s demise.
If not the legal case, even the claim process for family members is time-consuming and complex, as the next of the kin will have to produce relevant documents and legal papers to EPF to strengthen the case if the beneficiary wasn’t nominated.
So it’s advised that EPF members nominate their beneficiaries at the earliest and save precious time and money of their beneficiaries. Especially now when the process has been simplified as EPF members no longer need to produce a witness while nominating a beneficiary, and can simply walk into any EPF branch with their identification papers and complete the process.
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