Do you know the rights you have over the retirement money you save in your EPF account? Our guest post from CompareHero.my spoke to Puan Balqais Yusoff, Head of Strategy Management Department in EPF to help answer some of the common questions we have. She also shared key rights and responsibilities you need to know to make wiser decisions for your future and prepare for a better retirement, including withdrawals from Akaun 2.
What Can You Withdraw Your EPF Savings For?
You may have heard about people taking out their EPF savings before their retirement, but before you plan on doing the same here are some important points you should know.
Firstly, Puan Balqais shares that EPF allows their members to withdraw from their savings for purposes which EPF believes will improve retirement life of their members, which includes housing; education; and for medical purposes. There are also different withdrawal rights according to the various EPF accounts – Akaun 1 and Akaun 2.
EPF allows full withdrawal of Akaun 1 and Akaun 2 under certain conditions:
- When a person migrate to another country
- Upon a person becoming disable, or in the event of death.
- A civil servant placed under the pension scheme. This individual can cease to contribute to the EPF because they are entitled for the government pension scheme under KWAP.
Akaun 1 – off limits until you retire!
This is the main account for your retirement needs and makes up 70% of your EPF savings. Money from this account can only be taken out upon retirement. Throughout our working life, there is a basic savings amount that EPF has determined is required for each age group. To see the amount of savings you should have at your current age, click here.
Based on that chart, if you have an excess of money, that is you have saved more than your Basic Savings for your current age, you can actually invest your money in EPF approved fund management institutions. Currently, you can utilise 20% of your excess savings for investment, but as of 1 January 2017, you will be allowed to utilise 30% of your excess savings.
Let’s say you’re 30, according to the basic savings set by EPF you should have at least RM29,000. You have RM40,000 in Akaun 1, which means you have RM11,000 in excess. You can then invest 30% (as of 1 January 2017) from the excess of RM11,000 which amounts to RM3,300 into fund management which has institutions which has been approved by EPF.
“If an EPF member does not reach the basic saving requirement, they cannot utilize the money from Akaun 1 to invest in unit trusts”, said Puan Balqais.
30% of your total EPF savings will be in this account, from which you can make pre-retirement withdrawals for purposes stated above, including housing, education and medical.
“EPF allows pre-retirement withdrawals which in a way enhance the retirement wellbeing of our members. Savings in Account 2 can be withdrawn under specific conditions.” – Puan Balqais
Puan Balqais shares that EPF members can withdraw savings from Akaun 2 for the following purposes:
- Housing withdrawal, as this allows a member to have a roof over their head when they retire.
- Education withdrawal. Members can withdraw for themselves or their children, because EPF believes with better education they have the opportunities for a better livelihood in the future.
- Medical withdrawal. For members who have to pay for medical treatment of critical illness, they can withdraw for themselves or their close family members. Health is wealth.
- Age 50 withdrawal. A member can withdraw the full amount from their Akaun 2 when they turn 50. Nevertheless it is encouraged that members do not withdraw their savings in Akaun 2 at age 50, because once they withdraw it entirely, it’s gone and they do not earn their annual dividends.
- Haj withdrawal. Haj withdrawals helps members finance basic expenses of the Haj with a limit of RM3,000.
Upon reaching age 55, your savings in Akaun 1 and Akaun 2 will be combined and put into this account. When members turn 55, they can make withdrawals and have access to savings in Akaun 55 anytime. They can perform a lump sum withdrawal, monthly withdrawals or partial withdrawal. But members should also know that “as long as an individual still has savings in EPF even upon reaching age 55, they will still enjoy the annual dividend” said Puan Balqais.
This is an account for EPF members who continue to work beyond the age of 55. Monthly contributions between the age of 55 – 60 will be allocated under this account. Member’s cannot access savings in Akaun Emas until they reach age 60. But savings under Akaun 55 will still be accessible to members. Upon reaching 60, all savings will be consolidated into this single account. They will then have full access to the savings in Akaun Emas to make full withdrawals, or even partial withdrawals.
What Extra Benefits Do You Get From EPF?
Individuals who contribute to EPF will have access to certain benefits where they or their family will receive a sum of money if an unfortunate event happens to them before they turn 55.
RM2,500 as token of sympathy given to next of kin in the event of the member’s death
NOTE: Application must be made within 6 months from the date of death of the EPF member by their next of kin.
RM5,000 as token of sympathy if a member becomes incapacitated (on top of being able to withdraw all of their EPF money in full)
NOTE: Application must be made within 1 year from the incapacitation case of the member.
However, all of these benefits are no longer available once a member turns 55. In the event of death or incapacitation after that age, members will no longer have the right to receive the death or incapacitation assistance.
You might wonder, does EPF use our monthly contributions to pay out these tokens or aid? Puan Balqais assures us that this isn’t the case. Money for these benefits are sourced from EPF investments income, so don’t worry it does not come from member’s and their employers contribution.
“From our investments, EPF generates income, and the entire income is distributed as dividends after deducting all the administrative cost including the payment of these assistance.” shares Puan Balqais.
Who Has The Right To Your EPF Savings?
Do you know what will happen to your money in your EPF account in the case of an unfortunate event, such as death? You have the right to nominate your beneficiary, so if you haven’t done so we highly suggest to get on it.
Make sure the rights of your loved ones are taken care of by nominating any individuals for your EPF savings. This is a right given to you as you get to choose who you believe will handle your money in a proper manner if anything happens to you.
Before you nominate, know this:
Members can nominate any natural person, meaning a human as a beneficiary. For Muslims they must nominate an administrator or wasi who will act as an intermediate person that will distribute their asset in EPF based on the faraid As for non-Muslims they can nominate anyone where percentage entitled for the savings can be allocated for the individuals they nominate.
Nomination must be of an individual, so you cannot name an organization, association, societies or any type of entities. Puan Balqais advises all of us to nominate their next of kin such as their spouse, children or parents to receive or administrate their savings.
“Members can nominate other individuals who are not their next of kin as beneficiary or administrator (for Muslims), but naming individuals other than next of kin may raise difficulties in the future when they pass on especially the flow of the money as there will always be a lot of dispute with money matters.” – Puan Balqais
As of 1 January 2017, the process is made even easier as you no longer need to have a witness when nominating an individual. Just walk into any EPF branch and bring your identification with you.
Are There Different Rights Between the Conventional EPF Savings and Simpanan Shariah?
Once you go to Shariah, you cannot go back
Another point to take note is once you convert your savings from conventional to the Simpanan Shariah scheme, you cannot switch back to conventional scheme.
“Once the money is being tainted and you take it back and forth (between the two different schemes) we cannot ensure the money is being properly cleansed according to the Shariah principle. You will be mixing the funds that you invest because you will be investing in non-Shariah compliant assets. This is why we can’t allow people to switch back and forth between the schemes.” – Puan Balqais
Find out more about Conventional EPF Savings and Simpanan Shariah here.