EPF reduction and the impact on your retirement
One of the measures the government of Malaysia has taken to put cash back in hand to our citizens in Malaysia is to automatically reduce EPF contributions by employees by 4%. (previously 11%, starting 1st April 2020 onwards, it will be 7%).
Do note, if you would prefer to keep your (employee) contribution to 11%, you DO NEED TO submit the KWSP form 17A to your company to inform them of your intention. (as mentioned on the official KWSP website: https://www.kwsp.gov.my/-/reduction-of-statutory-contribution-rate-for-employees)
To do so, you do need to inform your employer with the relevant form: Borang KWSP 17A (Khas 2020):
If you do opt for the 4% reduction, or if you had missed the deadline of informing your employer (which is TODAY, 31st March 2020); how does this effect your future?
Statistically, EPF savings don't amount to much in Malaysia and by the time we retire as reported in 2018's "Social Protection Insight" report produced by KWSP. Here's snapshot of page 19, which summarises some key points:
Now a short term reduction of 4% today may not seem like much, but on a case to case basis (depending on age of a person, # of years leading up to retirement, current salary, and returns expectation); it could have a balloon effect on the reduction of available retirement funds:
For example, if because of this reduction in contribution, a hypothetical Mr Smith, who is 30 years old; reduces his EPF contribution by RM 200 per month, for 9 months, he would have reduced his contribution this year by RM 1,800 (April to December 2020). This RM 1,800 in a time value of money calculation, if was expecting a 5% return, and over a period of time of 30 years from now, would have accumulated Mr Smith RM 7,779.50.
It may not seem like much, but any reduction of your potential retirement resources, would mean you would have to make up for it before the time comes for you to retire.
Speak to our financial advisers today to have a review of your retirement plans, and how the options you choose now may effect your future.
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