What is EPF?
The Employees’ Provident Fund, also known as Kumpulan Wang Simpanan Pekerja (“KWSP”) in Malay, is a government agency that manages the compulsory savings plan and retirement planning for private and non-pensionable public sector employees.
The EPF functions through monthly contributions from employees and their employers towards saving accounts. While in savings these funds may be used in various investments by the EPF or, in some cases, by the members themselves.
Besides, members may choose to maintain their EPF account under:
- Simpanan Konvensional where their savings will be managed and invested conventionally; or
- Switch their account to Simpanan Shariah where their savings will be managed and invested according to syariah principles
Objectives of EPF
- To provide financial relief or social security protection for workers through compulsory savings.
- To provide financial security for its members’ retirement purposes.
- For preserving and growing the savings of its members in a discreet manner in accordance with best practices in investments and corporate conduct.
Benefits of EPF
The benefits of having an EPF contribution are as listed:
- Account 1 Savings Top-Up – Make voluntary contributions to your spouse/family’s EPF account
- Hajj Registration – changing of initial registration for Hajj under the Lembaga Tabung Haji (LTH) to the current EPF Hajj Registration facility without affecting the Hajj rotation date provided earlier.
- Yearly Dividends – The EPF contributions made by both employers and employees may be subject to investments, and will earn minimally 2.5% dividends annually that will be credited into your savings, allowing contributions to be higher than the original amount
- Incapacitation – Access to savings if one is unable to work
- Death – RM2,500 is paid to the member’s dependent of next-of-kin
- Tax Exemption – EPF contributions are tax-deductible for up to a maximum amount of RM4,000
EPF Contribution
According to s43(1) EPF Act, subject to the provisions of section 52, every employee and every employer of a person who is an employee within the meaning of this Act shall be liable to pay monthly contributions on the amount of wages at the rate respectively set out in the Third Schedule.
This means that an employer has to pay both the employees’ and the employer’s share to the EPF. Employers may deduct the employee’s share from said employees salary.
It should be noted that under s41(1) EPF Act, any employer shall pay salaries for which he is expected to make taxes under this Act by the end of the first week of the first month of which he works. The employee is allowed to receive the obligatory evidence and dividend rate after delivery of a donation to the EPF.
Contribution Rate
Prior to calculating EPF contribution, it must first be understood that not everything is liable for EPF contribution. This can be seen in the table below:
| Liable for EPF Contribution | Not Liable for EPF Contribution |
| – Salary – Payment for unutilized annual or medical leave – Bonus – Allowance – Commission – Wages for Half Day Leave – Incentive – Arrears of Wages – Wages for Maternity Leave – Wages for Study Leave – Other payments under contract of service or otherwise | – Service Charge – Overtime Payment – Gratuity – Retirement Benefit – Retrenchment, – Temporary Lay-off or Termination Benefits – Any Travelling Allowance or the value of any – Travel Concession – Any other Remuneration or payment as may be exempted by the Minister |
With this in mind, the contribution rate is as follows:
| Employee’s Status | Monthly Salary Rate | Stage 1 (Below 60 years old) | Stage 2 (Age 60 and above) |
| i. Malaysian ii. Permanent Resident (PR) iii. Non-Malaysians (registered as member before August 1998) | No Limit | N/A | Applicable for (i.) only Employee’s Share: 0% Employer’s Share: 4% (Ref Contribution Rate – Section C) |
| i. Malaysian ii. Permanent Resident (PR) iii. Non-Malaysians (registered as member before August 1998) | RM5,000 and below | Employee’s Share: 7% Employer’s Share: 13% (Ref Contribution Rate – Section A) | Applicable for (ii.) and (iii.) only Employee’s Share: 5.5% Employer’s Share: 6.5% (Ref Contribution Rate – Section C) |
| i. Malaysian ii. Permanent Resident (PR) iii. Non-Malaysians (registered as member before August 1998) | More than RM5,000 | Employee’s Share: 7% Employer’s Share: 12% (Ref Contribution Rate – Section A) | Applicable for (ii.) and (iii.) only Employee’s Share: 5.5% Employer’s Share: 6.5% (Ref Contribution Rate – Section C) |
| Non-Malaysians (registered as member from 1st August 1998 | No Limit | Employee’s Share: 7% Employer’s Share: RM5.00 (Ref Contribution Rate – Section B) | Employee’s Share: 5.5% Employer’s Share: RM5.00 (Ref Contribution Rate – Section D) |
It should be noted that employers are not allowed to calculate the employer’s and employee’s share based on exact percentage except for salaries that exceed RM20,000.00. The total contribution which includes cents shall be rounded to the next ringgit.
Withdrawal
Malaysian citizens and permanent residents may withdraw up to 30% of their savings when they are of the age of 50 years old. Once they are 55 years old, they may withdraw their full savings.
Besides, a full withdrawal may also be made in the event that an EPF member emigrates or becomes disabled.
Moreover, foreigners who opt to contribute to the EPF may withdraw their funds when they have terminated their employment and are about to leave the country.
