Employees' Provident Fund (EPF; Malay: Kumpulan Wang Simpanan Pekerja, KWSP) is a federal statutory body under the purview of the
Ministry of Finance A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Eco ...
. It manages the compulsory savings plan and
retirement plan
A pension (, from Latin ''pensiō'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments ...
ning for
private sector
The private sector is the part of the economy, sometimes referred to as the citizen sector, which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government.
Employment
The ...
workers in
Malaysia
Malaysia ( ; ) is a country in Southeast Asia. The federation, federal constitutional monarchy consists of States and federal territories of Malaysia, thirteen states and three federal territories, separated by the South China Sea into two r ...
. Membership of the EPF is mandatory for
Malaysian citizen
Malaysian nationality law details the conditions by which a person is a national of Malaysia. The primary law governing nationality requirements is the Constitution of Malaysia, which came into force on 27 August 1957.
All persons born in Ma ...
s employed in the private sector, and voluntary for non-Malaysian citizens.
History
Malaysian EPF was established in 1951 pursuant to the Employees Provident Fund Ordinance 1951, under the National Director of Posts. This law became the EPF Act 1951. In 1982, then the EPF Act 1991 in 1991. The EPF Act 1991 requires employees and their employers to contribute towards their retirement savings, and allows workers to withdraw these savings at retirement or for special purposes before then.
As of 31 December 2012, EPF has 13.6 million members, of which 6.4 million are active contributing members. At the same date, EPF had 502,863 contributing employers.
The EPF is intended to help employees from the private sector save a fraction of their salary in a lifetime banking scheme, to be used primarily as a retirement fund but also in the event that the employee is temporarily or no longer fit to work. The EPF also provides a framework for employers to meet legal and moral obligations to their employees.
As of 31 December 2020, the size of the EPF asset size stood at
RM998 billion. (US$238 billion),
making it the fourth largest pension fund in Asia and seventh largest in the world.
As of 2012, the EPF functions by requiring a contribution of at least 11% of each member's monthly salary and storing it in a savings account, while the member's employer is obligated to additionally fund at least 12% of employee's salary to the savings at the same time (13% if salary is below RM5,000).
While in savings, a member's EPF savings may be used as
investment
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing i ...
s for companies deemed profitable and
permissible by the organisation, from which
dividend
A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...
s are banked to respective members' accounts. Alternately, members may use their EPF savings in their own investments, although such activities are not covered by the EFP and the members are to bear any losses made.
Dividends
The EPF declares an annual dividend on funds on deposit which has varied over time, depending on investment results.
Legally, the EPF is only obligated to provide 2.5% dividends (as per Section 27 of the Employees Provident Fund Act 1991).
The EPF claims that the lowered dividend is the result of its decision to invest in low-risk fixed revenue instruments, which produce lower returns but maintains the principal value of its members' contributions. This is due to the EPF primarily aimed at providing a stable financial security of its members.
In addition, the EPF further elaborates dividend rates and their performances are calculated and influenced based on the full distribution of net EPF revenue, depending on the return on investments that in turn is based on asset allocation.
The EPF also attributes the declining interest market rate since 1996 to the
interest
In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...
market rate. Because 75% of investment funds are concentrated towards bodies closely linked to trends in the interest market rate, including Malaysian Government Securities,
loan
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...
s or
bonds, and money market instruments, low interest rates for the past few years had an adverse effect on returns for EPF investments.
In April 2007, criticism was raised at a proposed amendment of EPF guidelines (the EPF Bill (Amendment) 2007) that cuts monthly contributions of members above 55 years by 50% (6.2% from 11% for employees, and 5.7% from 12% for employers).
The change was described as a disadvantage to tens and thousands of members compared to those under the pension scheme as the former is not given free medical treatment after retirement, and was described as a form of discrimination towards senior members.
Under the proposal, an employer of foreign workers may also optionally contribute RM5 monthly per head, raising concerns of employers' preferences towards foreign employees.
The government responded by claiming that the proposal may be studied,
and later states that members can contribute at any amount above the slashed contributed amount.
The EPF guideline for employers of foreign workers remains unchanged, citing that the policy has been implemented before in 1998.
Conventional Savings (1952–2000)
Conventional Savings (2000–present)
Simpanan Shariah (2018–present)
The Simpanan Shariah is a savings option managed and invested by the EPF in accordance with Shariah principles. To ensure that the Simpanan Shariah is managed in accordance with Shariah as required under section 43A of the EPF Act, a Shariah governance framework is established to govern the Shariah compliance aspects of the EPF Simpanan Shariah.
Withdrawal
As a retirement plan, money accumulated in an EPF savings can only be withdrawn when members reach 50 years old, during which they may withdraw only 30% of their EPF; members who are 55 years old or older may withdraw all of their EPF.
When a member dies beforehand, the EPF fund is withdrawn in favour of a nominated individual.
Withdrawals are also possible when a member permanently
emigrate
Emigration is the act of leaving a resident country or place of residence with the intent to settle elsewhere (to permanently leave a country). Conversely, immigration describes the movement of people into one country from another (to permanentl ...
s,
becomes
disabled
Disability is the experience of any condition that makes it more difficult for a person to do certain activities or have equitable access within a given society. Disabilities may be cognitive, developmental, intellectual, mental, physical, se ...
,
or requires essential medical treatment.
Members above 55 years old can choose not to withdraw EPF savings immediately and withdraw only later, and, under existing guidelines, employers may continue to contribute 12% of the members' salaries at their own discretion.
Accounts
Effective 1 January 2007, a member's EPF savings consists of two accounts that vary by their share of savings and withdrawal flexibilities. The first account, dubbed "Account I", stores 70% of the members' monthly contribution, while the second account, dubbed "Account II", stores 30%. Account I restricts withdrawals to the moment the member reaches an age of 50 years, to boost retirement fund by investment in unit trust, is incapacitated, leaves the country or passes away. Withdrawal of savings from Account II however, is permitted for
down payment
Down payment (also called a deposit in British English), is an initial up-front partial payment for the purchase of expensive items/services such as a car or a house. It is usually paid in cash or equivalent at the time of finalizing the transactio ...
s or loan settlements for a member's first house, finances for education and medical expenses, investments, and the time when the member reaches 55 years of age.
Development of Bukit Bintang City Centre
A joint venture development between EPF,
UDA Holdings
UDA Holdings Berhad (formerly Urban Development Authority of Malaysia) is a Malaysian holding company. It served to launch and oversee urban development projects related to business, industry, and housing. It was also tasked with developing urban i ...
and
Eco World Development Group Berhad
Eco may refer to Ecology or Economics. It may also refer to:
Arts and entertainment
* ''Eco'' (video game), a 1988 life simulation game
* Eco (2018 video game), a 2018 simulation game
* ''Emil Chronicle Online'', a 2005 Japanese MMO computer ...
was announced in 2016 to develop the
Bukit Bintang City Centre (BBCC), a fully integrated development located on the former site of
Pudu Prison
The Pudu Prison ( ms, Penjara Pudu, ), also known as Pudu Jail, was a prison in Kuala Lumpur, Malaysia. Built in phases by the British colonial government between 1891 and 1895, it stood on Jalan Shaw (now Jalan Hang Tuah). The construction began ...
, with the project 40% owned by UDA, 40% owned by EcoWorld and 20% owned by EPF.
See also
* The
Central Provident Fund
The Central Provident Fund Board (CPFB), commonly known as the CPF Board or simply the Central Provident Fund (CPF), is a compulsory comprehensive savings and pension plan for working Singaporeans and permanent residents primarily to fund thei ...
, Singapore's Provident Fund
*
Provident Fund
Provident fund is another name for pension fund. Its purpose is to provide employees with lump sum payments at the time of exit from their place of employment. This differs from pension funds, which have elements of both lump sum as well as monthly ...
, for other "Provident Funds" in other countries.
*
Economy of Malaysia
The economy of Malaysia is the third largest in Southeast Asia and the 34th largest in the world in terms of GDP. The 2018 labour productivity of Malaysia was measured at Int$55,360 per worker, the third highest in ASEAN. According to the Gl ...
References
* Alaudin, R. I., Ismail, N., & Isa, Z. (2017). Determinants of retirement wealth adequacy: A case study in Malaysia. Institutions and Economies, 9(1), 81–98. Access to Document Link to publication in Scopus Link to citation list in Scopus
External links
*
Employees Provident Fundat the official Malaysian government website.
{{authority control
Government-owned companies of Malaysia
Age pension systems
Social security in Malaysia
Investment in Malaysia
1991 establishments in Malaysia
Ministry of Finance (Malaysia)
Minister of Finance (Incorporated) (Malaysia)
Privately held companies of Malaysia