The Employees Provident Fund (EPF) is concerned that more than 70% of its members have opted to reduce their employee statutory contribution rate from the original 11% to 7%.
The government had revised the contribution rate to 7% as part of the first economic stimulus package in February 2020, although members could choose to maintain it at 11% by filling up a form via their employer if they wished to. The revised rate is applicable from April 2020 to December 2020, and is the lowest to have been recorded in 40 years.
According to EPF, the last time the government allowed EPF members to keep a lower statutory contribution rate, only about half of all members chose to do so compared to the current 70%.
The current reduction in the statutory contribution rate is expected to provide up to RM10 billion of consumption boost for the nation’s economy. However, coupled with the allowed withdrawals from Account 2 via i-Lestari, it also means that members are tapping into their retirement funds for their present use, as well as losing dividends and the compounding power of those savings. The situation is made worse by the fact that at least two-thirds of EPF members do not have the necessary retirement savings recommended for their respective age band.
As such, the EPF is once again considering raising the minimum target for EPF basic savings for its members. The basic savings refers to the amount that is considered sufficient to support a member’s basic needs for 20 years upon retirement. At present, members are expected to have saved a minimum of RM240,000 by the age of 55. This target was set in 2019, and was benchmarked against the minimum monthly pension for public sector employees of RM1,000 per month.
(Source: The Edge)