KUALA LUMPUR: Employees’ statutory contribution to the Employees Provident Fund (EPF) reverts to the original 11% for members below age 60 effective January 2018, as the option to contribute 8% ceases after this month.
Members aged 60 and above must contribute 5.5% instead of opting to contribute 4%, the EPF said in a statement yesterday.
The option for the reduced contribution rate from March 2016 to December 2017 was among several measures announced by Prime Minister Datuk Seri Najib Razak in the recalibrated Budget 2016 announced on Jan 28, 2016 to boost private consumption and spur economic growth.
The government’s decision to revert to the original rates next month is in line with the strong economic growth over the past nine months, which saw Malaysia’s gross domestic product grow at 5.9%.
“The current economic conditions are right to implement the increase in retirement savings,” said Dr Yeah Kim Leng, economics professor at Sunway University.
The new rates, effective for salaries from January 2018, are expected to benefit employees although they will also reduce their disposable income.
“Domestic consumption is sufficiently robust for us to see an increase [in] consumers’ savings rate without significantly impacting spending,” Yeah said.
Meanwhile, the change in the employees’ contribution rate will have no impact on employers’ contribution, said Datuk Shamsuddin Badran, executive director of the Malaysian Employers Federation (MEF).
Employers are currently obligated to contribute 12% for its employees earning above RM5,000 and 13% for employees earning below RM5,000.
“With economic growth back on track, the move [to revert the employees’ rate to 11%] is timely,” Shamsuddin told The Edge Financial Daily.
He added that additional measures could be implemented to encourage more contributions to their retirement savings.
“My hope is that the government would consider increasing the maximum tax relief of RM6,000 for employees’ EPF contribution,” he said.
Malaysian Trade Union Congress secretary-general J Solomon also lauded the reversion to the original rate, saying the move should compel workers to save for their retirement.
“Many Malaysians do not generally practice a culture of saving, as they receive insufficient income to cope with the high cost of living,” Solomon said.
As such, he recommends that the EPF encourage employers to increase their contributions since the maximum contribution benefiting from tax exemption is 19%.
“Industries making good profits from the performance of workers should contribute more.”
In its statement, the EPF noted that employers are required to ensure the right amount of contributions is deducted from their employees’ salary and remitted to the EPF in accordance with the new contribution rates.
It added that members wanting to contribute more than the statutory rate of 11% or 5.5% may do so by completing Form KWSP 17A (AHL) or Form KWSP 17AA (AHL).