EPF Rate Reduce 3%, is good or bad?

Friday, November 21st, 2008 | In News & The Events |

My last article about the Employees Provident Fund (EPF) reduce from 11% to 8% and this automatic system will be taken into action start from next year until 31 December 2010. During this period of time, most of my friends have given me the same answer, which is NOT the right way to boast the economic crisis by using EPF adjustment method. I have even received an email that analysis why we should not follow this facilitate of EPF adjustment. I never though about these before, until my friends told me the reasons. Here is a short summery below.

1. EPF 8% means paying more income tax. For example,
Assume monthly income/ basic salary is RM4000. if you monthly EPF contribution is 11% (RM440) then taxable income will be RM3560, payable income tax will be RM77.

Whereas, if your monthly EPF contribution is 8% (RM320) then taxable income will be RM3680, payable income tax will be RM109. Conclusion, Government will not say thank you for more income tax you pay for it.

2. What the 3% can help us save for future?
Assume monthly income/ basic salary is RM4000 and contribute 8% for your EPF, it means you will get this 3% (Used to be your EPF contribution) along with your salary/ per month. An extra RM120 will be easily spent without your notice (Sometimes, I used to be like that).

3. Losing 5% annual dividend of your 3% EPF contribution.
A guaranteed annual dividend on your EPF fund will be credited to your EPF account by the last day of year end. The dividend rate is always changing but always better than the Fixed Deposit (FD) at any banks at Malaysia. An example,

Year 2000, dividend is 6.00%
Year 2001, dividend is 5.00%
Year 2002, dividend is 4.25%
Year 2003, dividend is 4.50%
Year 2004, dividend is 4.75%
Year 2005, dividend is 5.00%
Year 2006, dividend is 5.15%
Year 2007, dividend is 5.80%

For me, I think I will not get this 3% and put into my Fixed Deposit (FD) at public bank because it only has 3.7% of low annual interest.

4. Beside these, EPF has always been safeguarding its original objective that is provide old-age savings for all employees. This is reflected in the latest amendments to the EPF Act 1991 where at least 60% of the total saving of each employee is reserved for his old age while allowing the rest to be used for pre-retirement benefits such as purchasing or building house, reducing housing load and medical expenses.

So far, I have received these comments that suggest me to fill in the kwsp 17A (AHL) form to remain the 11% EPF contribution.


3 Comments to “EPF Rate Reduce 3%, is good or bad?”

  1. Comment 1
    Maco Says:

    I think good or bad is very subjective.
    I did some calculation on the above mentioned scenario:-

    11% EPF contribution = RM440
    8% EPF contribution = RM 320

    We save = RM440 – RM 320 = RM 120

    11% – Taxable income RM3560 = Payable income tax RM 109
    8% – Taxable income RM3680 = Payable income tax RM77

    We pay = RM 109 – RM 77 = RM 32

    Total cash in hand = RM 120 – RM 32 = RM 88

    no doubt that in 3 years time if compound interest is 6% p.a.

    Total Asset in 3 years for option 11% is RM 16,809 and option 8% is RM 15,393

    3 years total losses for option 8% is RM 1,416.

    However you can have RM3, 168 cash in hand.

    You decision to take it when you are 55 year old or take it now…

    I choose the latter…

  2. Comment 2
    EPF 8% Employee Contribution? Why Not 0% Employee Contribution at World of Maco Eu Says:

    […] read a blog from limcorp.net┬áregarding the view of the EPF reduce 3%. Original message was from a forwarded mail […]

  3. Comment 3
    Gregory Despain Says:

    It’s funny that you finally spoke up! I have been waiting for someone to bring this out to the open! Anyway… nice post. I will be back.

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