Understanding How EPF Works

Learn the right way you can save for your retirement with your EPF.
1 of 3

Making sure you fully understand how your EPF or KWSP  functions, we spoke to expert Liew Ooi Hann, a chartered financial analyst who is the founder of SaveMoney.my and CEO of RinggitPlus.com to find out more.

Wonder whether your EPF account will be sufficient for retirement, or how and where to start saving and investing? Hopefully, this article will shed light on how the EPF works as a savings tool, and what else you should think about when saving or investing for retirement.

EPF stands for Employee Provident Fund, the government-mandated savings fund in which every employee is legally required to contribute 11 per cent of their monthly salary, and their employer a further 12 to 13 per cent depending on the employee’s salary, which will be released to the saver upon retirement.

Can I make early withdrawals from my EPF account?

For those who don’t already know, while the EPF is meant to be a private pension (i.e. for when you  retire), you can actually take out a portion of your EPF at any time before you’re 55, but only for a specific number of reasons. This portion (30% of your monthly contribution) sits in what is known as your EPF Account II. You can request for a withdrawal from that account for the following reasons:

  • Owning a house – the down payment for your first house
  • Settling the balance of your housing loan – first house
  • Financing you and your children’s education
  • Your medical expenses and your children’s

Naturally, the question to ask is, should you take the money out? Well, if you feel that any of those 4 conditions are a better ‘investment’ than keeping the money in the EPF, then you should go ahead. Now that’s not to say that better ‘investment’ should always be (related to) financial benefits, as health and happiness come into the picture. A simple way to look at it would be the potential return of owning your first house (vs. renting), and comparing that against the return that you expect from the EPF over the same period of time.

How do non-regular salaried folks save for retirement without EPF?

Many people don’t know this, but commission earners, self-employed folks and business owners can also participate in the EPF. If you are self-employed, freelancing, or a business owner, you can opt to contribute voluntarily from your own income. You must first register as an EPF member by completing Form KWSP 3. Contributions can be made using Form KWSP 6A(1). The minimum contribution payment amount is RM50 and there is no maximum rate since 1st January 2011.

1 of 3