Is EPF Now Favoured for Savings and Investments?

With the increase in the limit of annual Employees Provident Fund (EPF) voluntary contributions from RM60,000 to RM100,000, the EPF has gone from a social security institution that helps the workforce to save for retirement to a savings and investment institution. That’s according to one economist.

Since EPF’s establishment in 1951, employees had to contribute 11% of their income to the pension fund, while employers paid 13% towards the savings of employees earning RM5,000 and below, or 12% for those earning above RM5,000.

Source: www.kwsp.gov.my

The role of the institution seems to have changed. The increase in the voluntary contribution limit, employees or informal workers can save more and enjoy around 5% dividends for conventional and syariah savings every year, which is similar to that of investment banks, Permodalan Nasional Berhad (PNB) and Tabung Haji. But unlike the existing savings and investment institutions, employees and informal workers can only withdraw 30% of their savings via Account 2, while withdrawals are restricted in Account 1 until the account holder turns 50.

EPF’s dividend of 5.35% for conventional savings and 4.75% for syariah savings in 2022, was higher than Tabung Haji (forecast of 2.75% to 3.1%) and PNB (4.6%). The increase in the voluntary contribution limit will benefit EPF, i.e. it has more funds for investments.

In allowing the increase in the annual limit of EPF voluntary contributions, the Prime Minister said it is in line with the changing employment landscape, which has seen an increase in informal jobs and jobs that can generate large but inconsistent incomes.

The PM further said the government also provides an additional contribution of RM500 to almost two million members of the target group, namely those aged 40 to 55 years and those who have savings of RM10,000 and below in Account 1. The additional contribution is intended to help members with low savings accelerate the accumulation of their retirement savings.

To facilitate and encourage members to make voluntary contributions, EPF has introduced a new function on its app, for seamless payment of voluntary contributions to members’ i-Akaun since July 2022. With the addition on the app, EPF has received favourable response, and as of Jan 31 2023, more than 315,702 members have taken advantage of this facility, with a total contribution amount of RM527,700,000. Under-60 self-employed members who have no fixed income or are outside the labour force, such as housewives, can choose to contribute voluntarily at any time according to their ability under the i-Saraan Programme. As an incentive to encourage this group to save under i-Saraan, the government provides a contribution of 15% of the total contribution, subject to the annual incentive limit, which has been increased from RM250 to RM300 for each contributor through the announcement of Budget 2023.

A total of 291,743 members made voluntary contributions under the i-Saraan programme, with a total amount of government incentives of RM33,210,000 having been credited into members’ Akaun 1.

EPF must remain a retirement fund.  The increase in limit (RM60,000 to RM100,000) improves EPF’s liquidity and members return compared to banks and other institutions. In fact, it is better if there is no upper limit. That will be a testimony to confidence in the institution. And EPF has so far shown its ability to invest wisely. Hopefully, the Government will not use it (EPF) as a conduit for some political agenda.

Reference:

With self-contribution cap raised to RM100,000 per year, EPF is now favoured for savings and investments, Arina Musthafa, The Sun Daily, 12 April 2023