Roadmap to Retirement: Malaysia's Pension System

What you need to know about EPF in 7 questions

What is a Pension Scheme?

A pension is a tax efficient way for you to save money for your retirement. It plays a crucial role in providing financial security for retirees and safeguards their wellbeing during their golden years.

What is Malaysia’s Pension Scheme?

The Malaysian pension scheme is called the Employment Provident Fund (EPF) or Kumpulan Wang Simpanan Pekerja (KWSP). It is a compulsory fund; unlike the NHS pension scheme, employees cannot opt out of paying into their EPF.

The EPF is specifically designed for employees in the private sector. Malaysia also has the Public Services Pension Scheme (PSPS) for civil servants and the Armed Forces Fund Board (LTAT) for military personnel. However, this article focuses on the EPF.

What are the Rates?

Both the employee and employer makes regular contributions to the EPF. Contributions are based on a percentage of the employee’s salary.

The statutory minimum rate of contribution is

12% for employers

11% for employees

Although, the employer or employee can choose to contribute a higher rate.

When can I withdraw?

EPF members may withdraw 30% of their EPF savings when they reach 50 years old and may withdraw all of their EPF when they reach 55 years old. Withdrawals are tax free and you have a variety of options on how you wish to withdraw eg. monthly dividend or yearly lumpsum.

If a member dies beforehand, the EPF fund can be withdrawn by a nominated individual.

If you choose to continue working after the age of 55, all further contributions will be credited into an account called Akaun Emas, to be withdrawn only upon reaching the age of 60.

Contributions for Akaun Emas fall to

6% for employers

5.5% for employees

Again you may contribute a higher rate should you wish to do so.

Can I contribute to EPF if I am self employed?

Unlike employees, people who are self employed do not have to contribute to the EPF. However, you may still wish to contribute to the EPF even if you are self employed.

i-Saraan KWSP is open to all individuals who are self employed with an irregular income stream. You may make contributions at any time until you reach the maximum voluntary limit of RM60,000 per year.

Similar rules for withdrawal apply.

Are there any other benefits to EPF apart from retirement?

Although primarily a retirement fund, EPF also serves as a multi purpose savings fund, allowing individuals to make withdrawals to finance housing, education and medical expenses. You do not need to be retirement aged to withdraw these amounts.

For example, members can withdraw savings to finance tuition fees for yourself, your children, spouse or parents at approved institutions locally or abroad. The fund also allows you to cover a one-way flight for first year students studying abroad.

Can I opt into a private pension scheme?

Yes. Similar to the UK, there are several private pension schemes that you can contribute to, in addition to your EPF contribution. They are usually provided by banks and we would encourage you to speak to a pension advisor should you wish to explore this further.

Disclaimer

The information provided in this article is for general informational purposes only and should not be considered as pension advice. Pension planning and decisions can have significant financial implications, and the content presented here is not a substitute for personalized, professional advice tailored to your specific circumstances.

Readers are strongly encouraged to consult with qualified financial advisors, pension experts, or legal professionals before making any decisions related to their pension plans.

The authors and publishers of this article do not assume any responsibility or liability for any actions taken by readers based on the information presented herein. The content is provided for informational purposes only, and readers are urged to seek expert advice to make well-informed pension decisions.

Additionally, pension laws and regulations may vary by jurisdiction and change over time. Readers should verify the accuracy and currency of any information provided in this article by consulting relevant authorities or experts. Always conduct thorough research and consider your specific circumstances before making pension-related choices.