The drastic economic effects of the pandemic meant that the government had to take some significant steps to ensure the people’s continued survival. So, in addition to a host of other policies, recent regulations have given Malaysians a measure of influence over how much they can contribute to their EPF (Employees Provident Fund). You can now drop your contribution to 9% or fill the Form KWSP 17A to ensure that you continue putting in the standard 11%. But before you swing, you should at least consider the possible effects of your actions. With this in mind, we’ll look at the possible repercussions of changing your EPF contribution from four (4) different angles.
1. From The Perspective Of Those Who Had To Take a Pay Cut
Due to the devastating effects of the pandemic, many employees who weren’t outright relieved of their duties had to take a pay cut. If you fall in this bracket, leveraging this new development might be your only logical recourse as it gives you more take-home to cover expenses without biting too deeply into what you put away for retirement. But if even with your pay cut, you can still manage all your financial responsibilities, you may be better off leaving your contributions at 11%.
2. From The Perspective Of Those Who Didn’t Take a Pay Cut
Some employees managed to scale through the worst of the pandemic without taking a pay cut. In this case, the opportunity to contribute less EPF means you take home even more of your earnings. By extension, you may be able to put more away for emergencies and, if you like, fund some of those lifestyle changes you’ve always wanted. However, in this instance, you should consider leaving your contributions at 11%, as you don’t necessarily need the extra cash now. Saving it for the future when you need it more may be more rewarding.
3. In Terms Of The Dividends You Can Earn
From 1999 to 2020, the EPF paid an average dividend of 5.9% per annum. It means that it is one of the safest and most profitable places you can keep your money right now. However, as the dividend you earn is directly dependent on your total savings, cutting your EPF contributions means that you may earn fewer dividends.
4. In Terms Of Tax Relief, You Can Access
The more you contribute, the higher you can claim. So, you’re saving money in two ways when you leave your EPF contributions at 11%!
Making The Right Decision For You
Ultimately, the way you go here depends on whether you can afford to pay your bills right now. If you can’t manage without the extra, you get from a lower EPF contribution, then go for it. But if you’ll be fine either, securing your future with an 11% contribution may be the way to go!
