Employees Provident Fund (EPF) of Malaysia

News on 6th Nov 2008, Malaysian Govt is "encouraging" Malaysian to spend more than savings.

Lower EPF Employees' Contribution Rate Starting January 2009 Wage

Members of the Employees Provident Fund (EPF) will be able to benefit from the reduction of the employees’ monthly statutory contribution rate by 3%, from 11 % to 8 %, effective from January 2009 wage for a period of two years.

Deputy Prime Minister and Finance Minister YAB Datuk Seri Najib Tun Abdul Razak made the announcement during the winding up speech for the Ministry of Finance on the 2009 Budget on Tuesday. The move will help increase members’ disposable income in the context of the current economic outlook. At the same time, the higher disposable income will support domestic consumption and thus help sustain the momentum of economic growth.

The decision to reduce members’ statutory contribution rate was taken twice before in 2001 and 2003 as part of an economic stimulus package.

For ease of members and to better facilitate implementation of the measure, the reduction of the employees’ contribution from 11 % to 8 % will be made automatically, effective from January 2009 wage. This arrangement will be implemented until December 2010 wage.

However if members wish to maintain the contribution rate at 11 % may choose to do so by filling up Form KWSP 17A (AHL). Once completed, the forms can be submitted to the members’ respective employers for submission to the EPF.

Above source from: http://www.kwsp.gov.my/index.php?ch=p2news&pg=en_p2news_press&ac=2735

Friends, normally employee will contribute 11% & employer will contribute 12% to EPF, this will make a total of 23%.

However have you ever wonder why it is 23% and not 30% or other percentage? Reasons could be below:

Man used to live till age 66 previously when our Govt set up the guideline for EPF contribution.

Age 66 minus age 55 (retirement age) = 11 years
Age 66 minus age 20 (employment age) = 46 years

Base on the above calculation, 11 divide 46 = 23 (meaning is 23%). This means employee needs to save 23% every year for their retirement expenses.

HOWEVER, human being live older now, which is on average till age 74.

Age 74 minus age 55 (retirement age) = 19 years
Age 74 minus age 23 (employment age) = 51 years

Base on the above calculation, 19 divide 51 = 37 (meaning is 37%), and this means employee needs to save 37% every year to meet their retirement needs.

Looking at it, every employee in Malaysia is short of 14% (37% minus 23%), this EXCLUDE the calculation of inflation !! Thus without further delay every employee should have SAVE another 14% in order to meet their retirement needs.