The Employees Provident Fund (EPF) is a cornerstone of Malaysia’s retirement savings system, established to provide financial security for Malaysian workers upon retirement. It is a mandatory savings and retirement plan for private- and public-sector employees, ensuring workers save a fraction of their salary.

EPF contributions are divided between the employee and the employer. Employees must contribute 11% of their monthly income, while employers contribute an additional 13% for those who earn below RM5,000 and 12% for those whose salary is above RM5,000.

These contributions are designed to accumulate over time, earning dividends and thereby providing a substantial retirement fund for employees.

Up until May 10, EPF savings were divided into two main accounts:

• Account 1 primarily for retirement savings: 70% of your monthly contribution was directed here. This account was designed to secure financial stability for members post-retirement.
• Account 2 for specific pre-retirement withdrawals: the remaining 30% of your monthly contribution was directed here.

As of May 11, EPF savings were restructured and are now divided into three main accounts:

• Akaun Persaraan (Account 1), primarily for retirement savings, receives 75% of your monthly contribution.
• Akaun Sejahtera (Account 2), for pre-retirement withdrawals under specific criteria, receives 15% of your monthly contribution.
• Akaun Fleksibel (Account 3), which allows pre-retirement withdrawals, receives 10% of your monthly contribution.

The implications of having a third EPF account include greater access to funds for emergencies or short-term needs, which could be a double-edged sword. On the one hand, it provides relief during financial hardships; on the other, it could lead to reduced retirement savings if not managed wisely.

What happens to your money?

To generate returns, EPF members’ savings are invested in a diversified portfolio that includes equities, bonds, real estate and infrastructure. The fund has a balanced investment strategy, allocating assets to domestic and international markets to optimise returns.

In 2022, despite global market downturns, EPF declared a dividend rate of 5.35% for conventional savings. This means even when the global market faced challenges, it managed to generate solid returns, highlighting the strength of its investment approach.

Withdrawal options

As EPF is meant to be a repository for retirement funding, a full withdrawal of savings from all accounts is only allowed upon reaching age 55.

There are allowances for partial withdrawals from Akaun Sejahtera (Account 2) for housing, education, medical expenses, insurance/takaful and pilgrimage. Those who have reached age 50 are also allowed to make withdrawals.

Partial withdrawal involving Akaun Fleksibel (Account 3) can be done at any time, provided the account is not empty.

These options provide flexibility for members to access their savings when needed, such as to cope with unforeseen circumstances such as unemployment.

Is EPF alone sufficient for retirement?

While EPF is a significant component of retirement planning, individuals should also practise good financial literacy by exploring other savings and investment options.

Regularly review EPF statements to monitor savings growth and ensure contributions are correctly recorded. Members should also consider making voluntary contributions, which can significantly enhance one’s retirement corpus over time.

Another valuable strategy is to explore investment opportunities through the EPF Members Investment Scheme (EPF-MIS). More on this below.

Finally, careful planning of withdrawals, particularly from Akaun Fleksibel, is essential. While this account provides flexibility for pre-retirement expenses, do be cautious when withdrawing to ensure sufficient funds remain to support financial stability during retirement.

What is EPIF-MIS?

EPF-MIS is a voluntary investment scheme that allows EPF members to enhance their retirement savings by investing a portion of their Account 1 funds into approved unit-trust funds. This scheme is designed to allow members to increase their returns through investments in a diversified portfolio.

1. Eligibility and investment conditions

EPF-MIS is open to members aged 18-54 with amounts exceeding Basic Savings in Account 1. Basic Savings is a predetermined amount that increases with the member’s age, reflecting basic retirement needs. Members can invest up to 30% more than their Basic Savings amount.

2. How to invest

Initiate and manage your investment transactions through the EPF’s online portal, i-Invest. This platform simplifies transferring funds from Account 1 to the chosen unit trusts.

3. Benefits

EPF-MIS offers flexibility for you to invest in domestic and selected overseas funds, providing opportunities to optimise your EPF savings through a diversified investment strategy.

All in all, by understanding the structure, contributions and benefits of EPF, Malaysians can effectively leverage this tool as part of a comprehensive retirement planning strategy.

However, with new changes, including the introduction of Account 3, individuals must stay informed and consider the long-term implications of their withdrawal decisions, striking a balance between addressing immediate financial needs and ensuring sufficient savings for a comfortable retirement.

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