EPF CONTRIBUTIONS - To cut or not to cut ?

In light of the current economic slowdown, our government has come up with various strategies to increase rakyat’s extra disposable income and hoping that they will in turn spend that extra money to boost up our economic activity.

This is done by allowing employees to opt for a reduction of their contribution to the Employees Provident Fund (EPF) for two years from 1st January 2009 from 11% of salary to 8%.

No doubt that 3% may have good effects from the standpoint of the country, but a negative one on the long-term retirement savings of those affected, which for most of us EPF contributors is already too low.

Some of us would argue that it is just a small amount and therefore would not affect much of their retirement needs, but that is not the right way to look at it. It seems that many have failed to realize its implications in the long run.

From my personal standpoint, there is great need to put aside enough money for our retirement years. What more with the retirement age set so low at 55 and today’s longer life expectancy of at least 20 years beyond.

Every little bit helps. In fact, we should actually be looking at how to increase (rather than decrease) both the employers and employee contributions to the EPF so that our retirement savings becomes bigger.

We should therefore make every effort to resist (or rather reject ?) any change that would make our retirement benefit smaller.

I am also disappointed that the government has decided to use this strategy whereby the employees have to fill up a form to let the EPF know that we’re keeping our contribution at 11%. That means if we don’t do anything, may be due to forgetfulness or just couldn’t find the right time to do so, then EPF will assume that we have agreed to opt for the lower contribution of 8%.

To me, the better way to do this is the other way around. That is, to require those who want to change from the current 11% to 8% to fill up the form instead !

This clearly shows that the strategy used by the government is specially designed to ensure that most people will unwittingly agree to opt for the lower contribution by not doing anything !

In this aspect, I feel the government has neglected its duty to help ensure we have enough savings for our retirement.

No matter how much or how little we earn, it’s very crucial that we save some of it – at least 10% of our salary. For most of us, EPF is an enforced savings. Therefore, it must be left untouched or used only for the most important purpose in our life.

In this particular situation, I personally feel that we must be proactive and take matters into our own hands. So when EPF sends its forms out to our respective employers, make sure we immediately fill it up and state VERY CLEARLY that we want to keep our contribution at 11%.

The difference will mean thousands of ringgit many years down the line, money that will help us live better in our old age. InsyaAllah.