Understanding EPF plays a crucial role in securing your future. The Employees’ Provident Fund (EPF) known in Malay as Kumpulan Wang Simpanan Pekerja (KWSP), forms the backbone of Malaysia’s retirement system. Employees who want to maximize their retirement savings and employers who aim to get their HR and payroll right need to know what EPF is, its rules, rates, and how it operates.
In this post, we’ll go through EPF — not just its definition, but how it affects your money and ways to make it more effective for you. This helps if you’re looking at HR & Accounting Software that claims to make EPF calculations and compliance easier.
EPF: The Basics
EPF (Employees’ Provident Fund / KWSP) is a required savings plan for private-sector employees and non-pensionable public sector employees in Malaysia, under the Employees’ Provident Fund Act 1991.
The concept is straightforward: every month, employees and their employers put some of the employee’s pay into the fund. This money grows, makes extra cash, and becomes available when employees reach certain ages (55, 60, and so on) or in special cases like leaving Malaysia for good, buying a house, going to school, getting medical care, or other approved reasons to take money out.
Why EPF Matters
- Retirement safety: A lot of Malaysians count on their EPF savings as their main money for retirement.
- Automatic savings plus money growth: You can’t say no (if it covers you) so you end up saving money without trying. Dividends declared by EPF cause your money to grow as time passes.
- Flexibility in withdrawals: EPF lets you take out money for things like housing and medical needs, not just for retirement. This means it’s more than just a pension fund.
EPF Contribution Rates: What You Need to Know
The EPF contribution rates depend on a few things:
| Category | Monthly Salary ≤ RM5,000 | Monthly Salary > RM5,000 |
| Employees Below 60 Years Old | – | – |
| Malaysians | Employee: 11% Employer: 13% | Employee: 11% Employer: 12% |
| PRs / Non-Malaysians (Registered before 1 Aug 1998) | Employee: 11% Employer: 13% | Employee: 11% Employer: 12% |
| Non-Malaysians (Registered after 1 Aug 1998) | Employee: 2% Employer: 2% | Employee: 2% Employer: 2% |
| Employees Aged 60 Years and Above | ||
| Malaysians | Employee: 0% Employer: 4% | Employee: 0% Employer: 4% |
| PRs / Non-Malaysians (Registered before 1 Aug 1998) | Employee: 5.5% Employer: 6.5% | Employee: 5.5% Employer: 6.0% |
| Non-Malaysians (Registered after 1 Aug 1998) | Employee: 2% Employer: 2% | Employee: 2% Employer: 2% |
A few extra things to keep in mind:
- EPF keeps contributing the employer portion until age 75; employee contributions change with age.
- The Third Schedule of the EPF Act 1991 spells out the contribution rates. Employers must stick to these legal rates, not just use flat percentages.
How EPF Savings Are Structured
Your EPF money doesn’t go into just one account. The recent changes have split it up:
- Akaun Persaraan (Retirement Account) – This holds about 75% of what you have to put in.
- Akaun Sejahtera – Around 15% goes here. You can use this for certain well-being needs or approved take-outs.
- Akaun Fleksibel – This has about 10%. It gives you more options to take out money for specific things you need.
When you turn 55, your EPF savings (Akaun Persaraan + Sejahtera + Fleksibel) merge to form Akaun 55. Even at this age, you can withdraw the funds from this account at any time. Any new contributions made after this age will no longer go into Akaun 55, but instead will be placed in a separate account called Akaun Emas. These savings continue to grow, and you’ll be able to withdraw them once you turn 60.You can take out all your money once you hit 60.
EPF-liable Payments
EPF doesn’t take money from everything you earn. It includes:
- Your main pay (daily, weekly)
- Extra money like bonuses, commissions, incentives
- Money for expenses, paid time off (sick days having a baby, studying, etc.)) back pay
Payments not subject to EPF contributions:
- Overtime pay doesn’t require EPF contribution.
- In many instances, service charges tips, travel allowances, or the value of travel perks.
EPF Dividends and Returns
Your contributions grow over time. That’s what puts the money to work — in government securities, bonds, and other approved investments — and announces yearly dividends. There are two options:
- Simpanan Konvensional
- Simpanan Shariah (if you choose Shariah-compliant EPF).
Both earn comparable dividend rates, based on how well these investments perform. For instance, in recent times the rate has stayed close to 6.30% for both regular and Shariah options.
Common EPF Myths
- “People over 60 don’t pay into the system.”
This isn’t always true. Employee payments might decrease or stop, but companies often keep contributing, based on your nationality, residency status, and age group.
- “I can tap into my EPF funds whenever I want for anything.”
This isn’t quite right. The system controls withdrawals: you can use the money for housing, schooling, health care, and so on, but rules apply and you need to have enough money in your accounts the ones with tighter restrictions.
For Employers: Compliance and Practical Tips
Since your site handles HRMS & accounting software, this part might be crucial for your users.
- Accurate deduction & remittance: Employers need to deduct the employee’s portion, add their own, and then send it by the 15th of the next month. Paying late can result in penalties or interest.
- Correct use of rate schedule: Check the Third Schedule of EPF Act 1991 — rates change based on age and salary. Guessing a flat percentage can lead to errors.
- Payslips and statements: Employers should give out payslips that show EPF deductions. This lets employees check them twice.
- Software tools (like yours) that make EPF calculation, compliance, and rate changes automatic can cut down on time and mistakes.
How to Get More from Your EPF
- Keep an eye on your statements often (through KWSP “i-Akaun”) to make sure your contributions are right.
- Choose the full contribution rate if you can (some lower rates came in for a short time; not picking these might mean you save less in the long run).
- Plan withdrawals such as using Akaun Fleksibel, or housing/education options instead of early withdrawals that can shrink your long-term retirement savings.
- Get to know the dividend patterns – bigger dividends do help so learning how EPF invests (traditional vs. Shariah) might shape your choice.
To Wrap Up
EPF isn’t just money taken from your paycheck — it’s a backed organized savings plan created to provide Malaysians with financial security when they retire and flexibility during key life events. For employees, it guarantees a long-term nest egg; for employers, it’s a must-do requirement and boosts staff morale. Using tools — budget-friendly HRMS & accounting software that do EPF calculations, create payslips, and keep track of contributions — helps you follow the rules and puts your mind at ease.
That’ why InfoTech provides you exactly that. Contact Us today for a Demo!