The Employees Provident Fund (EPF) takes note of the Government’s decision on the reduced minimum statutory contribution rate for employees, from 11 per cent to seven (7) per cent as announced on 27th February 2020.
The new rate will be effective starting 1 April 2020 until the end of the year and affects members below age 60. For those aged 60 and above, the employees’ share of the contribution rate will remain at zero per cent. The move to reduce the statutory contribution rate is part of the Government’s economic stimulus package intended to cushion the blow from the economic fallout following the global COVID-19 outbreak. Employers are required to ensure the correct amount is deducted from their employees’ wage/salaries based on the Third Schedule, Akta KWSP 1991. Employees may choose to maintain the current contribution rate of 11 per cent by completing Notis Pilihan Mencarum Melebihi Kadar Berkanun KWSP 17A (Khas) which is available on epf.gov.my. This notice must be presented to employers to be submitted to the EPF.
Source: KWSP
If you do not wish to maintain the current 11%, the difference of 4% will have to go somewhere. Either you spend it or save it.
Let's do an example.
An employee who has a salary of RM5,000 contributes 11% to EPF all the while. If he decided not to maintain the 11% contribution, he would have 4% extra which is RM200 per month for 9 months (Apr - Dec 2020).
What can you do with extra RM200 per month for 9 months only (total of RM1,800). Either you spend it in 1 trip or every month extra entertainment or even get yourself a nice handphone. What do you benefit from that other than another expense?
What you have earned & spent is NOT your money
What if you continue to maintain the RM200 in your retirement fund. Be it in EPF or alternatively PRS, it will contribute to your future retirement fund. Assume average return 6%p.a. for 30 years, the RM1,800 will become RM10,338!!! 😱😱 It's not about saving RM200 per month, it's about having an extra savings of RM10,338.
Spend RM1,800 now or have a savings of RM10,338?