The Employees Provident Fund (EPF) or also known as Kumpulan Wang Simpanan Pekerja (KWSP) is one of the most important retirement savings schemes in Malaysia. Whether you’re a salaried employee or self-employed, understanding how the EPF works can help you maximize your savings for a secure financial future and help with your retirement. This article covers everything you need to know about the EPF, including its benefits, contribution rates, withdrawal options, and strategies to grow your retirement fund.
Table of Contents
What is EPF / KWSP?
The Employees Provident Fund (EPF) or also known as Kumpulan Wang Simpanan Pekerja (KWSP) is a mandatory savings scheme established by the Malaysian government since 1951 to help private-sector employees and non-pensionable public-sector workers save for retirement. It is managed by the Employees Provident Fund Board and ensures that Malaysians have sufficient savings to support themselves after retirement.
EPF Dividend Rates and Historical Returns
2024 – 6.30%
REJOICE!
One of the key advantages of the EPF is its annual dividend payout, which has historically ranged between 5% to 7%. The fund invests in various asset classes, including equities, bonds, and real estate, to generate stable returns for members. EPF dividends are compounded annually, making it a powerful tool for long-term wealth accumulation.
The 6.30% declared for 2024 is one of the highest in history. Anything above 6% is really good for Malaysians. Rejoice!
EPF / KWSP Contribution Rates
Both employees and employers contribute to the EPF based on a percentage of the employee’s monthly salary:
- Employees contribute 9% of their monthly salary.
- Employers contribute 12% for salaries RM5,000 and below and 11% for salaries above RM5,000.
EPF Account Structure
The EPF divides contributions into three accounts:
- Retirement Account (Akaun Persaraan) 75%
Originally Account 1, Akaun Persaraan aims to accumulate and increase the members’ saving level for the long term to achieve a comfortable life after retirement. Savings in Akaun Persaraan cannot be withdrawn before 55 years old.
However, eligible members can invest a portion of their Akaun Persaraan savings in investments managed by the approved Fund Management Institutions (FMIs), subject to the terms and conditions. This is not recommended by Dividend Magic, keep your EPF money in EPF, no unit trusts please. - Wellbeing Account (Akaun Sejahtera) 15%
Originally Account 2, Akaun Sejahtera aims to meet the pre-retirement life cycle needs for the medium term. Savings in Akaun Sejahtera can be withdrawn for pre-retirement purposes (subject to EPF terms and conditions) such as:- Housing
- Education
- Health
- Insurance/Takaful protection
- Hajj
- Age 50 Years Old
- Flexible Account (Akaun Flexible) 10%
The aptly named Akaun Flexible is designed to meet members’ short-term financial needs. Savings in Akaun Fleksibel can be withdrawn by members any time, subject to terms and conditions. However, members are encouraged to withdraw only for emergency purposes and immediate needs only.
EPF Withdrawals
Age-Based Withdrawals
- Age 50 Withdrawal – Members can withdraw from Account 2 as a partial retirement fund.
- Age 55 Withdrawal – Members can withdraw the full amount in both Account 1 and Account 2.
- Age 60 Withdrawal – For members who continue contributing after 55, they can withdraw their accumulated savings at 60.
Other Withdrawal Options
- Full withdrawal for permanent disability
- Full withdrawal for leaving Malaysia permanently
- Nomination benefits – To ensure savings go to the rightful beneficiary in case of death
- For the Flexible Account (Account 3) – You can withdraw from Akaun Fleksibel any time through the KWSP i-Akaun app. Once processed, the funds will be disbursed directly into your bank account. It’s important to note that there is a minimum withdrawal amount of RM50.
EPF Withdrawal – More than RM1 million savings
This here is the best form of withdrawal. If you happen to be a high income earner or you have voluntarily contributed extra amounts every year, you’ll find yourself with more than RM1 million in EPF savings. This is when you get the flexibility to withdraw any savings in excess of RM1 million.
An important note – you have to withdraw a minimum of RM50,000 at any one time.
Strategies to Maximize Your EPF Savings
- Voluntary Contributions – You can contribute beyond the mandatory rate to boost your retirement fund.
- i-Invest – Invest a portion of your EPF savings in approved unit trusts to potentially earn higher returns.
- Delay Withdrawals – Keeping your funds in the EPF beyond 55 years old allows your savings to continue compounding.
- Diversify with Private Retirement Schemes (PRS) – Supplement your EPF with PRS to enhance your retirement income.
EPF Voluntary Contribution – RM100K a year
You can choose to increase your EPF savings voluntarily on top of your existing mandatory monthly deductions, with as little as RM10, up to a maximum of RM100,000 per year.
By starting your savings journey as early as possible, you can take advantage of the power of compounding, giving your savings more time to grow. So, that’s why you should start saving now to ensure comfort and financial stability during retirement.
More info on Voluntary Contribution to your EPF here.
EPF i-Saraan – Self contribution and RM500 per year
Self-employed individuals can also voluntarily contribute to the EPF under the i-Saraan scheme, which allows them to enjoy government incentives while saving for retirement. More on EPF’s i-Saraan scheme here.
Please do self-contribute here and earn that RM500 per year if eligible for i-saraan. Do take note that there is a lifetime incentive limit of RM5,000.
Who is eligible to apply for EPF’s self contribution scheme – i-Saraan?
- Malaysian
- EPF Member
- Self-employed individuals (not an employee)
- Below 60 years of age.
KWSP i-Sayang – Contribute To Your Wife’s Retirement Savings
i-Sayang is an initiative introduced by the government that allows the husband (contributor) to transfer the 2% employee share contribution received from the employer to the wife’s (recipient) EPF account.
Features of EPF’s i-Sayang
- Transfer of 2% employee share contribution received from the employer to the wife’s EPF account.
- The application is made voluntarily by the husband, and the transfer occurs automatically each month when an employer contribution is credited to the husband’s EPF account.
- The transfer of this contribution cannot be cancelled unless the wife divorces or dies.
- More information here.
We’re all familiar with EPF as our retirement fund. But what does EPF actually invest in?
Main Assets of EPF
As of 2018, equities made up about 41% of EPF’s total assets.
A further 50% is invested in fixed income instruments.
Let’s have a look at some of EPF’s largest equity holdings.
It’s a good idea to have EPF’s investments as a reference, apart from my Freedom Fund of course. ; )
What I Do With My EPF
I personally am leaving my EPF untouched till I reach 55. And then I’ll withdraw a monthly amount to keep me alive, slowly drawing down on the capital. And if I do happen to have extra funds, I will be self contributing to EPF, up to RM100K a year.
Your EPF is essentially forcing you to save a portion of your income every month. And it helps you reinvest those 6% and above dividends every single year.
Even though I’ve mentioned there
I see no reason for one to forego that 6% return in lieu of mutual funds or property. If you’ve got to take money from your retirement savings to purchase something, you definitely can’t afford it. In my opinion, of course.
Has anyone done this long term and made good money from Options 2 and 3?
End.
The EPF is a crucial pillar of retirement planning for Malaysians. Understanding its features, making informed contributions, and leveraging available investment options can help you build a robust financial future. Whether you’re just starting your career or nearing retirement, proactive planning with the EPF can ensure you enjoy financial security in your golden years.
You may have heard from uncles and aunties telling you to withdraw as much as you can during times of uncertainty. Mutual fund agents may have enticed you to believe their RM100 million funds are superior to our national fund – worth over RM800 fucking billion dollars.
Property agents may have hinted that your purchase of that 3BR apartment is a better decision than leaving your money in the hands of a professional investing team.
I think all are a load of hokum and I’ll stick with EPF for the foreseeable future.
I think you should too.
And this is a plea to all Malaysians, don’t squander away your retirement savings.
TL;DR – Withdrawal from EPF? Bad idea.