By Chee Jo-Ey
INTERIM Prime Minister Tun Dr Mahathir Mohamad had recently announced a RM20 bil economic stimulus package on the back of the Covid-19 outbreak that has impacted economies worldwide.
Among the items in the package are Employees Provident Fund (EPF) contribution rate by employee being reduced from 11% to 7% starting from April to December 2020.
So, in the period of time, employees are mandated to contribute a minimum of 7% of their salaries. If employees want to contribute 11% of their salaries, they can fill up the 17A Khas form.
For the uninitiated, a stimulus package is a package of economic measures put together by a government to stimulate a floundering economy. The objective of such a package is to reinvigorate the economy by boosting spending. It is often used as a means to drive the economy.
But is this the right time for people to spend and contribute less to their retirement funds?
Take for example, A who earns a monthly salary of RM4,000. EPF declared a dividend of 5.45% for 2019. The reduction of 4% from 11% to 7% translates to A contributing RM160 less to his retirement savings with a loss of RM8.72 dividends every month (assuming a dividend rate of 5.45%). By Dec 2020, A would have contributed RM1,440 less to his EPF with a loss of RM78.48 in dividends.
University of Malaya department of finance and banking faculty of business and accountancy lecturer Dr Eric Koh said: “The move helps to cushion the depressing effect of the virus outbreak. By having more cash in hand, people may be able and willing to spend more. This helps drive consumption growth.
“But of course people have to be mindful of their post-retirement savings. The move as a temporary measure should be alright. Perhaps the government can consider reverting to a higher EPF contribution rate when the virus’ effects diminish.” – Feb 28, 2020
