Employees Provident Fund (Kumpulan Wang Simpanan Pekerja) in Malaysia: A Complete Guide

Employers all over the world offer numerous benefits and perquisites to ensure optimum employee safety and a lower attrition rate. In addition, governments in several parts of the world have established compulsory norms for employees to ensure their wellbeing.

One such prevalent practice that most of us are acquainted with is the Employees’ Provident Fund (EPF). When you receive your salary slip, you often come across the term EPF, which has been deducted from the gross salary payable to you.

In case you are wondering what it is and why it has been deducted from your pay, this article discusses the basics of Malaysia’s Employees’ Provident Fund and everything else you would need to know.

What is the Employees’ Provident Fund?

As of June 2022, around 14.6 million M alaysians are covered under this act.

Also known as Kumpulan Wang Simpanan Pekerja (KWSP), EPF initially saw the light of the day in 1951 after the passing of the Employees’ Provident Fund Ordinance 1951.

EPF is a social security law formed under Act 452 of the Employees’ Provident Fund Act 1991 and seeks to provide retirement benefits to its members to ensure optimum financial security when the age is not on their side.

Employees' Provident Fund Act 1991

Established as the EPF Act 1951, the Employees’ Provident Act was subsequently updated in 1991 to become the EPF Act 1991. It intends to secure employees’ retirement period by pushing them to keep aside a part of what they earn. In addition, it also holds employers responsible for ensuring that their employees have enough retirement savings.

Is KWSP and EPF the same?

Yes. EPF is also known as KWSP or Kumpulan Wang Simpanan Pekerja in Malaysia. It is a retirement fund created as a federal statutory body managed by the Ministry of Finance in Malaysia.

Who needs to contribute to the EPF?

The EPF contribution comprises two parts - one from the employer and the other from the employee. An employer is a person, such as a manager, agent, or any other entity, who provides employment opportunities to other individuals and has a contract of service or apprenticeship.

An employee is a person who is employed and receives compensation under a contract of service or apprenticeship.

What type of payments are liable for EPF deductions?

The EPF covers any remuneration in the form of money or money’s worth due to the employee under their contract of service or apprenticeship, payable monthly, weekly, daily, or as agreed upon.

So, here are the payments liable for EPF contribution:

Salary
Bonus
Allowance
Commission
Incentives
Payment for unutilised annual or medical leave
Arrears of wages
Wages for paid leaves (study, maternity, or otherwise)
Other wages as stated under contract or otherwise

What is the EPF contribution rate for 2022?

Here is what the Law of Malaysia states as the minimum statutory contributions for employees in the country:

For employees below 60 years of age

Employee - 11% of the monthly wages
Employer - 13% of the monthly wages for employees who earn RM5,000 or lower (12% for those making over RM5,000)

For employees above 60 years of age

Employee - 5.5% of the monthly wages
Employer - 6.5% of the monthly wages for employees who earn RM5,000 or lower (6% for those making over RM5,000)

What is EPF self-contribution?

EPF is not limited to only salaried individuals but is extended to others, too. The Malaysian government encourages voluntary participation of others not compulsorily covered under the law. For this, they must file the contribution payment via Form KWSP 6A(1).

Here are the individuals allowed to make an EPF self-contribution:

Sole proprietors or business partners, retired workers and others are not covered under the term ‘employee’ in the EPF Act 1991.
A domestic servant employed by an individual working in their residential home.
Any Malaysian citizen who has withdrawn all their savings under the Leaving the Country Withdrawal Scheme previously but has returned and is employed and working in the country.

When should EPF contributions be paid?

These employers’ contributions to the EPF must be paid to the employees by the 15th of the following salary month.

In case they miss the due date and make payment after that, they would be liable to pay interest on such late payments. While the minimum interest charged is RM10, the actual amount depends on the dividend rate declared by the EPF Board. The board declares the dividend rate annually, and the employer has to pay 1% extra over the announced rate, with the final amount rounded to the next higher Ringgit (RM).

If the contribution date exceeds the last day of the following month, an additional dividend charge will be added to the interest due. The dividend due will be credited to the employee’s EPF saving account.

How to make EPF payments?

Payments, whether by self or by the employer on behalf of their employees, can be completed online. For this, they must visit the KWSP website, login into their account and enter the requisite details.

As for payment modes, the KWSP application supports FPX (Financial Process Exchange), DDA (Direct Debit Authorisation), and Maybank2u for those who want to pay directly.

Alternatively, individuals can use internet banking or cash/cheque/MyDebit Corporate Card of supported banks for payments. In case someone wants to pay offline via cash or cheque, they can visit the EPF counters closest to them to complete the payment.

Can I withdraw EPF for personal use?

While EPF is primarily to cover your retirement days, there are several different use cases in which you can use the funds accumulated in your EPF account. Here are some of the most common use cases:

EPF withdrawal for housing

Having a house that you can call yours is one of the things that every individual should accomplish before they retire. So, Malaysian laws allow individuals to use their EPF funds to build a house or pay their EMIs for acquiring a home, but withdrawals are not permitted for renovation.

EPF withdrawal for medical bills and equipment

Suppose your illness falls within the list of approved critical conditions by the EPF board. In that case, the law allows you to withdraw from the provident fund to cover the treatment costs and any ancillary expenditure for purchasing medical equipment (for yourself or your close family members).

EPF withdrawal for education

The cost of education is on the rise in the country and worldwide. So, EPF allows the withdrawal of funds for tertiary education and covers the tuition fees cost. In addition, if you want to repay your PTPTN loan, you can use your EPF to do so partially too. Furthermore, repayment of other study loans and institution fees are also covered.

EPF withdrawal for leaving the country

For those looking to shift from Malaysia and renouncing their citizenship or foreigners who have been working in the country but now plan to leave, the EPF law allows them to withdraw the entire funds accumulated in their account.

EPF withdrawal for Hajj

If you plan to take a Hajj trip, the EPF rule allows you to withdraw funds for the pilgrimage.

Can I use EPF to buy insurance or takaful plans?

Recently, the EPF has launched the i-Lindung platform that allows purchasing insurance and takaful products. It includes life and critical illness protection for EPF subscribers, which can be purchased at affordable premiums via i-Akaun using funds from your EPF Account 2. EPF-approved Insurance and Takaful Operators include Prudential Assurance Malaysia Berhad, Prudential BSN Takaful Berhad, Etiqa Family Takaful Berhad, Etiqa Life Insurance Berhad, and FWD Takaful Berhad.

EPF is a vital enabler to a peaceful retirement

The portion of your earnings going towards your EPF is crucial to ensure financial stability when you retire. Given its purpose, if you are thinking of withdrawing funds from it before you retire, you must understand that you should not take that extreme step unless it is an acute emergency.

EPF FAQs

At what age can I withdraw from EPF Account 1?

Malaysian law allows beneficiaries to partially withdraw funds from their EPF account at 50 or 55. They can withdraw the entire amount anytime once they turn 60.

How long can I keep my money in EPF Malaysia?

The EPF body has recently clarified that beneficiaries will continue to earn dividends up to the age of 100 if they have not withdrawn their funds from their Provident Fund account.

How can I know my EPF balance?

Beneficiaries can check their EPF balance directly via your i-Akaun. For this, you can download the EPF i-Akaun app and log in to view your account information and balance.

How much EPF do I need to retire?

The EPF requirement amount requirement would depend on your pre-retirement standard of living and your expectations once you have retired. Find out all you need to know about EPF at https://www.kwsp.gov.my/home