Thinking about using your EPF savings for home renovations? You’re not alone. Many people assume that because EPF can be used to buy a home, you should be able to use it for upgrades and improvements, adding to the value of the property. The reality is a bit more complicated, we’ll explain how to do that.

Understanding the EPF Account Structure

Finding your way around the rules, it helps to understand recent changes to the EPF account structure. As of May 2024, the KWSP restructured its members’ savings from a two-account to a new three-account system. The initiative was a strategic move to balance the long-term goal of retirement income security with citizens’ immediate and short-term financial needs.  

The new system is built upon three pillars, each with a specific purpose and contribution allocation:  

Akaun Persaraan (Account 1)

Akaun Persaraan is the foundation of your retirement savings, receiving 75% of your contributions. This account is meant for long-term growth and should remain untouched until you reach the age of 55. It’s designed to ensure you have enough funds when you stop working.

Akaun Sejahtera (Account 2)

Akaun Sejahtera receives 15% of your EPF contributions and is intended to meet significant life expenses like buying a home, paying for education, or the unexpected cost of healthcare. Withdrawals from this account are limited to very specific needs and are subject to eligibility criteria, so make sure you meet the requirements if you plan to use it for one of these purposes.

Akaun Fleksibel (Account 3)

Akaun Fleksibel is the newest account, receiving 10% of your contributions. True to its name, it offers flexibility, allowing you to withdraw funds at any time for short-term needs or emergencies. It’s there to help you cover immediate financial needs without worrying about long-term restrictions.

Can I Use Account 2 for Renovations?

The short answer is no, you can’t use Account 2 for home improvements

EPF’s Account 2 is meant for very specific purposes. Related to your home, you can use Account 2 for things such as buying your first or second home, reducing your home loan balance, or paying your monthly housing loan installments. 

It might seem logical that you could use Account 2 for home improvements if you can use it to buy property. Unfortunately, the rules are clear, that is not allowed.

What Home Improvement Projects Qualify for EPF Withdrawal?

While Account 2 is off-limits for renovations, you can use Account 3, Akaun Fleksibel, for home renovations and improvements.

What kind of improvements? Projects like a new or refurbished kitchen, bathroom upgrades, roof repairs, or landscaping all qualify because EPF doesn’t set restrictions on how you use the funds in this account. Whether you’re spending RM5,000 on fresh paint or RM50,000 on a complete makeover, the withdrawal process is the same.

How Much Can I Withdraw and What Are the Limits?

With Account 3, you can withdraw as little as RM50. There’s no maximum limit, as long as you have enough in your account. Plus, there are no complicated calculations or approval processes tied to specific projects.

For withdrawals over RM10,000, you’ll need to visit an EPF office or Self-Service Terminal  for thumbprint verification. If it’s your first time withdrawing or if your bank details have changed, you will definitely need to visit an EPF office

What’s the Application Process?

It’s very easy to apply online. Steps to access Account 3 for home renovations:

1. Open the KWSP i-Akaun mobile app or website and log in
2. Navigate to ‘Withdrawal’ menu
3. Select ‘Withdraw your savings’
4. Choose ‘Akaun Fleksibel’ (Account 3)
5. Enter your desired amount
6. Verify your bank account details (must be an individual account in your name)
7. Enter the Transaction Authorisation Code (TAC)
8. Submit and wait for processing

That’s it! Once everything is submitted, the money should reach your account within a few working days. There is no need to visit any branches or wait for weeks to get approval.

What Documents Do I Need for Renovation Expenses?

One of the biggest advantages of using Account 3 is that you don’t need any documentation for renovation withdrawals.

That means no contractor quotes, no purchase receipts, no before-and-after photos. It’s a paperless experience. KWSP doesn’t ask what you’re spending the money on because that’s the entire point of this flexible account. It’s your money for emergencies.

How Does This Affect My Retirement Savings?

You can use your Account 3 EPF funds for renovations, it’s important to remember that every ringgit you withdraw now means less money for your retirement later.

Here’s an example: 

Withdraw RM25,000 today for renovations

At EPF’s historical average return of 5.5% annually, you lose:

• In 10 years, you could lose RM17,715 in growth (total opportunity cost: RM42,715). 
• In 20 years, you could lose RM48,040 in growth (total opportunity cost: RM73,040).
• In 30 years, you could lose RM100,018 in growth (total opportunity cost: RM125,018).

Your RM25,000 kitchen renovation actually costs you RM125,018 in pension payouts if you’re 30 years from retirement. 

Managing Home Upgrades and Retirement Goals

Before withdrawing from your EPF for renovations, take a step back and evaluate how important your home improvement dreams are when weighed against  your retirement plan.. Could you delay the project a few more years? Or set aside a separate fund for it instead? 

Remember, your EPF is meant to support you when you’re no longer working, and each withdrawal reduces its ability to grow serious wealth over time with the power of compound interest. Account 3 may not be the best option in the long run. The potential loss in retirement savings can be significant. 

Although it costs money to borrow money it may actually be cheaper to take out a personal loan, or explore home equity loans for larger sums. 

By planning ahead and making more informed decisions now, you can enjoy your home improvements today without sacrificing your financial future.

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• TAGS:
• EPF
• Home Renovations
• How-To