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What Could Possibly Happen If There’s No EPF?

Updated 24 Oct 2019 – By Nisya Aziz


Recently, the CEO of Employees Provident Fund (EPF), Tunku Ali-zakri Alias made a worrying statement that EPF may not be relevant anymore in the future

Huh, really ah? 

Yup, he shared: “There might actually come a point in time in our lifetime when the EPF might no longer exist because the amount of money being taken out will no longer be able to (be) supplanted by the amount of money coming in.”



On top of that, Tunku Ali-zakri also mentioned that the total number of workers who contributed to EPF had dropped drastically to just 40% from 48% from a few years ago. And, with Malaysia set to become an ageing nation by 2030, contributions to the fund could decline as more people retire and withdraw their money. 

Another concern that he raised that can affect the contributions to the fund is the growing number of gig economy (technically informal employment like freelancers where they’re paid on a job-to-job basis with no benefits that formal employers have). According to government data, there are over 1.3 million people were employed informally in 2017 and is expected to grow even more. 

And this got us thinking, is it really that important to have EPF? What can possibly happen if it no longer exists?



1. You won’t get tax relief benefit



If you’re a taxpayer, you’ll do your very best to find ways to reduce your tax payable amount. And one of the benefits of having EPF is that you’ll get tax relief up to a maximum of RM6,000 per year. On top of that, all the dividend you earn and the money withdrawn under the EPF savings withdrawal schemes are all tax exempted! So, if no more EPF, have to scratch head find other ways to maximise tax relief lah like this.


READ: Tax Relief 2018: 9 Things You Should Know When Doing 2019 E-Filing



 

2. You may be financially doomed when there’s a medical crisis

If you’re not yet 55 years old, do know that as an EPF contributor, you’ll have access to certain benefits when unfortunate events (touch wood) happens to you such as:
  • RM2,500 as a token of sympathy given to next of kin in the event of the member’s death
  • RM5,000 as a token of sympathy if a member becomes incapacitated (on top of being able to withdraw all of their EPF money in full)


Besides that, you can also do Health withdrawal from Account 2 to pay for medical expenses or treatment of critical illnesses i.e. cancer, major burn and heart attack and/or to buy medical aid equipment as approved by the EPF Board.

Of course, this bill can be settled if you have medical insurance. The problem is, what if you’re not financially savvy? According to the EPF CEO, there’s a government study released recently that showed a large number of Malaysian workers who can’t afford healthcare insurance premiums. So, do you think that you can afford to get sick?

 

3. Your options to fund your mortgage, education or hajj may be limited

Did you know that the savings from Account 2 can also help you to fund for your mortgage because not everyone is qualified for incentive programs - this can help you in making homeownership possible and more affordable.



You can also make withdrawals for education purposes. For example, if you’re having a hard time paying your PTPTN loan, you can opt to pay using EPF money to help you ease your financial burden. Or maybe you or your children are looking to further your study, you can use this fund to finance for that education too.

And to those who want to perform Hajj, you also get to withdraw your EPF savings for this purpose. Imagine when you have no EPF and no proper savings, you’ll have limitations financially and funding for education, mortgage and hajj may be harder.

 

4. You may still have to work hard when you’re at your golden age

Yes, we'd probably not able to retire easily if we’re not careful about managing our finance.  A local daily reported that Financial Planner, Dr Niki Shuhada Shukor shared the level of awareness among Malaysians on retirement financial planning is still very low and worrying and this is due to the lack of public awareness.



This is probably true because EPF did a survey in 2017 on household savings in Kuala Lumpur and other big cities as well as in the rural areas and found that over 90% of the respondents don’t have enough saving to retire comfortably.

Some of you may say, “You think EPF money alone enough to sustain meh?” Well, at least the situation would be slightly better than not having anything at all. And, even if EPF is the only thing you rely on, you can still increase the savings for your retirement by investing in Unit Trust using EPF Account 1. 

 

So, what now?

There you have it - 4 things that can possibly happen if there’s no EPF. Looking at the listed conundrums above, we can conclude that it can be a nightmare. Well, for now, you don’t have to worry much because this might not happen anytime soon. Having said that, let’s take it as a wake-up call. Perhaps it’s time to really think about the importance of saving up and doing holistic financial planning apart from being able to manage your debt. And yes, everyone knows this - but, how many of us are actively doing it?

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