Employees Provident Fund

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For the social security organisation based in India, see Employees Provident Fund Organisation of India.

The Employees Provident Fund logo.

The Employees Provident Fund (Abbreviation: EPF) also known in Malay as Kumpulan Wang Simpanan Pekerja (Abbreviation: KWSP) is a government organisation in charge of social security or retirement planning for legally employed workers in Malaysia. Membership to the EPF is mandatory for working Malaysian citizens, or non-Malaysian citizens who are either permanent residents or have been EPF members before 1 August, 1998.^[1]

1 Overview
2 References
3 See also
4 External links

[edit] Overview

The Malaysian EPF was formally founded after the enactment of the Employees Provident Fund Act 1991 (Act 452), which grants employees retirement benefits via a body that is intended to manage their savings.^[2] As of 31 December, 2006, a total of 11.4 million members have registered to the EPF, of which 5.4 million are active and contributing members, and 416,000 are active employers.^[2]

The EPF is intended to help employees from both private and non-pensionable public sectors save a fraction of their salary in a lifetime banking scheme, to be used in an event that the employee is temporarily or no longer fit to work. The EPF primarily applies to retirement, but sickness, disabilities or unemployment are also covered. The EPF also provides a framework for employers to meet legal and moral obligations to their employees.^[2]

As of November 30, 2006 , the size of the EPF stood "in excess" of 260 billion ringgit.^[3]

[edit] Savings and investments

As of 2007, the EPF functions by procuring 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.^[2]

While in savings, a member's EPF may be used as investments for companies deemed profitable and permissible by the organisation, from which dividends 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 EPF and the members are to bear any losses made.^[2]

Compared to those declared by several other agenda, the EPF declares an annual dividend on funds collected which has been progressively declining since 1987:^{[citation needed]}

1983 to 1987	1988 to 1994	1995	1996	1997 to 1998	1999	2000	2001	2002	2003	2004	2005	2006	2007
8.5%	8.0%	7.5%	7.7%	6.7%	6.84%	6.00%	5.00%	4.25%	4.50%	4.75%	5.00%	5.15%	5.80%

Legally, the EPF is only obligated to provide 2.5% dividends (as per Section 25 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.^[4]

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.^[5]

The EPF also attributes the declining interest market rate since 1996 to the interest market rate. Because 75% of investment funds are concentrated towards bodies closely linked to trends in the interest market rate, including Malaysian Government Securities, loans or bonds, and money market instruments, low interest rates for the past few years had an adverse effect on returns for EPF investments.^[5]

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).^[6] 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.^[6] Under the proposal, an employer of foreign workers may also optionally contribute RM5 monthly per head, raising concerns of employers' preferences towards foreign employees.^[6] The government responded by claiming that the proposal may be studied,^[7] and later states that members can contribute at any amount above the slashed contributed amount.^[8] The EPF guideline for employers of foreign workers remains unchanged, citing that the policy has been implemented before in 1998.^[8]

[edit] 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.^[1] When a member dies beforehand, the EPF fund is withdrawn in favour of a nominated individual.^[9] Withdrawals are also possible when a member will emigrate,^[10] becomes disabled,^[11] or requires essential medical treatment.^[12] 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.^[8]

[edit] 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 55 years old, is incapacitated, leaves the country or passes away. Withdrawal of savings from Account II however, is permitted for down payments or loan settlements for a member's first house, finances for education and medical expenses, investments, and the time when the member reaches 50 years of age.^[13]