Sunday, November 16, 2008

Dilemma For EPF Contributors

The Star Online> Nation
Sunday November 16, 2008

Dilemma For EPF Contributors

KUALA LUMPUR: More money to use now means less for one’s retirement. This is the dilemma Employees Provident Fund contributors face should they decide to opt to have their monthly contribution reduced from the mandatory 11% to the “voluntary” 8%.

The government’s decision to adopt this measure to help Malaysians tide the rise in prices of goods and services and the economic downturn is heartily welcomed by those in the lower income group and struggling to pay bills.

But there are many who prefer to stick to the 11% deduction and tighten their belts momentarily.

This group is also irked by the “burden” of having to fill up an EPF form – those who do not will be deemed to be agreeable to contributing 8% for two years effective Jan 1.

Under the new scheme, a 35-year-old employee with a RM3,000 monthly salary would be able to take home an extra RM90 in his monthly pay packet, which amounts to RM2,160 over two years.

However, assuming that a 5% dividend is paid out annually with the compound element over a period of 20 years until he turns 55, he will be RM5,500 “poorer” when he retires.

If his monthly income for the next two years is RM5,000, he would lose out on a total savings of RM9,200 in his EPF upon retirement.

As it is, the EPF has raised concerns about Malaysians not having enough savings to see them through 20 years past retirement, much less lead a comfortable life.

In a study by the EPF last year, the average contributor has only RM106,000 in his savings while one would need a projected sum of about RM747,000 (taking into consideration inflation rates) if one were to live for 25 years after retirement.

1 comment:

Danial said...

EPF 8% Means Paying More Income Tax (For High Income Group)

Assume monthly basic salary is RM4000.
- If your monthly EPF contribution is 11% ( RM440 ), taxable income = RM3560, income tax payable = RM77.
- If your monthly EPF contribution is 8% ( RM320 ), taxable income = RM3680, income tax payable = RM109.
Conclusion : If you choose to contribute 8%, you will end up paying more income tax,
this measure is meant to boost up the slow-down market,
but from this example we see that the money does not go into the market.
Instead the money goes direct into the govt
through the greater amount of income tax that we will have to pay.
Obviously this measure does not help the market at all.