Introduction
In Malaysia, Employee Provident Fund (EPF) is known as Kumpulan Wang Simpanan Pekerja (KWSP). In brief, EPF is a mandatory savings scheme for every employee from Private and Non-Pensionable Public Sector in Malaysia. 11% of the employees’ monthly gross income would be contributed to the EPF. In addition, the employer would contribute certain percentage to the employees’ EPF accounts. For wages of RM 5,000 and below, the employer would contribute 13% of the wages to the employees’ EPF account, whereas for those wages exceeding RM 5,000, the employer’s contribution would be only 12%. The contribution would then be invested in a number of approved financial instruments such as Malaysian Government Securities, Money Market Instruments, Loans & Bonds, Equity and Property to generate income. The EPF ensure us to have a secure savings and reasonable dividends. A minimum dividend of 2.5% is guaranteed annually. The actual dividend rate declared would be varied according to the investment return made in approved financial instruments as stated. The annual dividends are calculated based on the opening balance in the EPF account as at 1 January of each year, while the monthly dividends would be credited into the EPF account based on the monthly contributions received.
It could be observed that enormous amount of the old folks are currently working as taxi drivers, cleaners or even security guards, even after their retirement ages. That is probably because they have spent all of their EPF balances within few years after their retirement. The EPF balances could have been used for further study of their children, finance their daily expenditures and accommodation as well as rising medical costs. On the other hand, it is very disheartening to get to know that the old folks are being sent to old folks’ home by their children due to their incapability to fend for their parents due to inflation and rising medical costs. These tragedies probably would not happen on us if we have a proper financial planning start from now on.
According to IFCI Financial Services Ltd, a good financial plan should covers the few things which are contingency planning, risk planning or insurance, retirement planning, tax planning, investment and savings option (IFCI Financial Services Ltd , n.d.). We would focus mainly on the most crucial retirement planning for Malaysians, which is Employees Provident Fund (EPF). We would also discuss and compare other types of retirement planning such as pension fund and Private Retirement Scheme (PRS).
Apart from EPF, some people will also opt for pension fund, Private Retirement Scheme (PRS), or deferred annuity plans. Despite some of the differences among the plans, these schemes share the common objective, which is to secure an additional and adequate nest egg after retirement.

Content
Overview of EPF
Malaysia’s Employees Provided Fund (EPF) was established on 1 October 1951 according to the Employees Provident Fund Ordinance 1951. Today, EPF is run by a government agency under the Ministry of Finance and it is governed by Employees Provident Fund Act 1991. This act consists of 86 sections and it is relating to a scheme and the management of the saving for employee’s retirement purposes.
EPF’s vision is to be a world-class social security organization which providing the best retirement savings for Malaysians and its mission is to provide the best Retirement Savings Scheme. EPF is a vital saving plan for all employees from Private and Non-Pensionable Public Sector in Malaysia. Currently, EPF has 13.6 million members. The total number of active and contributing members is 6.53 million. (Employees Provident Fund, 2014)
In year 2012, the minimum retirement age for employees in Malaysia has been revised, from 55 years old to 60 years old, as stated in Section 4 of the Minimum Retirement Age Act 2012 (Act 753). However, the employers may at any time fix a higher retirement age than 60 years old for their employees. Minimum Retirement Age Act 2012 comes into force on 1 July 2013. (The Official Portal of Ministry of Human Resources, 2012)
EPF dividend is given annually to its members. The lowest dividend rate of EPF in these recent years is 4.5%, where we can find in financial crisis year (Appendix 1). After the Global Financial Crisis of 2008, the EPF’s dividend rate has been keep rising year by year. Last year, EPF has declared a 6.35% dividend rate for 2013 and it is the highest rate since 2000.
As at 31 March 2014, Malaysia’s EPF has RM597.02 billion of investment assets. The EPF’s investment assets have been increased dramatically. It shot up to RM597.02 billion from RM 536.55 billion in 2013. It has skyrocketed to 11.27% (Employees Provident Fund, 2014). From here we can see that, the prospect of EPF is remarkable.

Importance of EPF
Employment Provident Fund (EPF) plays a crucial role in financial planning since it provides fund both pre-retirement and post-retirement for the EPF members.
A member’s EPF saving consists of two account. The first account is called “Account 1” which is for post-retirement plan. This balance in the account cannot be withdrawn before the age of retirement, which is 60 years old in Malaysia. When the employees turned to age of 60, they probably cannot work as usual due to mental and physical illness or some of them may just want to retire and enjoy their remaining life. Apparently, they will have no source of income and it is unlikely to continue to make a living. But, they can withdraw balance in EPF for their retirement life. From here we can aware that, how important the EPF is.
The second importance of EPF is it provides fund for pre-retirement. EPF members can withdraw the savings from Account 2 before the age the retirement and to pay the down payment for purchasing the first house. It can reduce the members’ burden when purchasing a house as they can use their saving in account 2 to pay their down payment. Hence, the tenure for housing loan applied from the bank would be shortened or monthly mortgage payment would be lesser. Besides, balance in Account 2 also can be withdrawn for education purpose, both self and children. It can also be used for the purpose of medical treatment, both incapacity of mental and physical. In short, Account 2 helps members to make an early preparation for retirement and reduce their burden.

Characteristics of EPF * Contributors of EPF
All individuals who work for a wages in the private sector or in a non-pensionable public sector are mandated to contribute part of their monthly wages to EPF.
For instances, directors who receive wages and part time employees are required to contributed to EPF. Besides, employees who have withdrawn their money under the Incapacitation Withdrawal and who have made their saving withdrawal under the Pensionable Employees and Optional Retirement Withdrawal and work for private sector’s are also obligated to contribute to EPF. Furthermore, employees who are still working after 60 years old in private sector are also mandated to contribute to EPF as well.
On the other hand, individuals who are self-employed, who receives the salary that paid by the house owner and foreign worker who is employed and worked in Malaysia legally are not required to contribute to EPF. But, they can opt to contribute at the same rate as Malaysian, but the minimum contribution amount is RM50 per month (The Malaysian Reserve, 2013). * Type of income included for EPF contribution
Generally, all payments which are deemed to be wages are liable for EPF contribution. For example, salary, bonus, commission, wages for study leave, maternity leave, maternity leave and other payments under services contract.
However, some payments are not accountable in members’ monthly contribution amount calculation. For instances, service charges, overtime payment, retirement benefits, travelling allowance and director’s fee are not liable for EPF contribution (Save money, 2014). * Rate of EPF contribution according to age and income of members Age of Employee | Monthly Income | Employee’s Contribution | Employer’s Contribution | < 60 | ≤ RM 5000 | 11% | 13% | | > RM 5000 | 11% | 12% | 60 – 75 | ≤ RM 5000 | 5.5% | 6.5% | | > RM 5000 | 5.5% | 6% |

Table 1: EPF statutory contribution rate
Effective from August 2013, the minimum retirement age has been increased from 55 to 60 years old in Malaysia. However, the rate of contribution remains unchanged.
The EPF statutory contribution rate for employee who aged up to 60 with a monthly income of RM5, 000 and below is 11% while employer’s rate of contribution is minimum 13%. For employees who earn monthly income more than RM5, 000 they have to contribute 11% while the employer’s contribution is at least 12%.
For those who aged 60 until 75 with a monthly income of RM5, 000 and below, the employees have to contribute 5.5% to EPF while employer’s rate of contribution is 6.5%. If the employees who get the monthly income of exceeding RM5,000, they are required to contribute minimum 5.5% while employer’s contribution rate is 6%. (Employees Provident Fund, 2014) * Account 1 and Account 2
A member’s EPF saving account consists of 2 accounts, which are account 1 and account 2. They have different withdrawal flexibilities, percentages of contribution and purposes.
Account 1 consists of 70% of the member’s monthly contribution. This account cannot be withdrawn before the age of retirement, which is 60 years old in Malaysia. Members can choose either to withdraw their saving in a lump-sum, monthly payment scheme or a partial amount which is more than RM2000 at intervals of at least 1 month. (The Star, 2012)
Besides, members of EPF are allowed to invest part of the balance in Account 1 in investment. But, members cannot invest more than 20% of the total fund from excess above the basic saving amount (Appendix 2) in account 1. Effective from 1 January 2014, the 2014 EPF basic savings amount has been revised upward to a higher level to ensure all the members have sufficient savings to finance or manage their retirement needs. (Employees Provident Fund, 2014) It means that members has lesser amount can be withdrawn for investment after 1 January 2014.
Account 2 consists of 30% of the member’s monthly contribution. This account can be withdrawn before the age of 60. There are few types of withdrawals can be made from account 2. For instances, age 50 years withdrawal, age 55 years withdrawal, incapacitation withdrawal and so on. Besides, members can withdraw the saving from account 2 for the purpose of home financing, such as reduce or redeem housing loan.
Furthermore, account 2 also aids members to finance studies and relief medical expenses burden. Members can withdraw the money from account 2 for the purpose of education for self and children at an institution of higher learning either locally or overseas and for the purpose of medical expenses incurred by members and their family members. * Investment portfolio
EPF had invested the EPF contributions in various types of approved financial instrument to generate returns. Approximately half of EPF funds have been invested in fixed income instruments, 43% in equity investment and 5% in money market instruments, real estate and infrastructure. (News Sabah Times, 2014)
To enhance the transparency of the investment, Malaysia’s EPF unveils its top 30 equity investments (Appendix 3) on its official website in every quarter year.

* Rate of dividend
A reasonable dividend will be given to all of the EPF’s members. In Malaysia, the minimum EPF dividend rate is 2.5%. EPF will invest the member’s contribution in approved financial instruments to pursue optimal returns. Member will receive their dividend annually and it will be credited into member’s account. (Employees Provident Fund, 2014)
Last year, EPF has declared 6.35% dividend rate for 2013 (Appendix 1) and it is the highest dividend payout to its members. (The Malaysia Insider, 2014) * Responsibilities of employers and employees
Your first employer is liable to help you to register with the EPF when you work for the very first time. The employer is obligated to complete Form KWSP 3 with the employee’s personal information and autograph as stated in employee’s identity card.
Employer is required to help the employees to register as an EPF’s member as soon as possible so that the employee’s EPF contribution can be paid within the specified time and not later than 15th day of the following month. (Save money, 2014)
For instances, if an individual is employed on 1st June, the employer is required to register EPF for the employee in the first week of the month, so that the employee’s wage for that month can be contributed to EPF not later than 15th July.
An individual is only required to register as an EPF member once in a lifetime. If individual has changed his job, he should inform his new employer about his existing membership of the EPF and provide the employer his EPF account number.
Advantages of EPF * As a part of personal saving All the workers in Private and Non-Pensionable Public Sector are required to register as EPF members in Malaysia. They need to contribute some portion of their monthly salary as a compulsory saving. The government fosters the workers to have a good habit, which is to save before spend. EPF is crucial to secure your future when you retire. It is because you can withdraw the money in your own personal saving accounts arbitrarily at any time you want, but you cannot do so to your EPF account. You can only withdraw money before your retirement for specific purpose. Hence, the EPF members get to achieve their targets and goals more easily in the future. * Dividend payment
EPF not only acts as a saving instrument, but it also provides considerable dividend payment compared to other investment vehicles. Other types of investment which offer the same rate of return even have higher risk, either systematic risk or non-systematic risk. According to Star Online, EPF chairman Tan Sri Samsudin Osman announced that the highest sum in dividend payout has been amounted to RM 31.20 billion, which increased from 6.15% in year 2012 to 6.35% to year 2013. In short, dividend received is one of the ways to increase our retirement funds. (Star Online, 2014)

* Tax exemption
EPF provides tax deduction to the members. The amount exempted is up to RM 6, 000 per year. At the same time, the return on EPF investment is also tax exempted. Not only employees who contribute EPF monthly, but the employers can also enjoy the benefit on the tax exemption. It means that the amount of money employer used to contribute the 12% or 13% of EPF to their employees can be deducted from the income tax. In shorts, the higher amount the employer pays, the lower the income tax payment. (Malaysia Kini, 2008) * Low default risk
EPF is regulated by Ministry of Finance. Compared to other private pension funds company, EPF is less risky. It is more reliable and transparency because all the information and financial statements are disclosed by the government. EPF is managed by expertise and experienced professionals in finance sector. EPF members do not need to monitor and keep track of the market performance as if they are investing in the stock market. Hence, they are at ease even their fund is utilized by EPF to make investments. * Incapacitation and death benefits
EPF also provides extra benefits such as insurance care and death compensation. For those who suffer from incapacitation, they can claim their compensation by as long as they fulfill the requirements. It is stated that the incapacitation benefit will be paid to EPF members who lost their job due to unable to perform the existing work. According to Employees Provident Fund, the total amount of incapacitation is RM 5,000. However, the benefit will be provided only once, where terms and conditions applied. On the other hand, death benefit is a compensation provided to member’s dependent or next of kin. The amount of compensation is RM 2,500, paid only once in lump sum. (Employees Provident Fund, 2012)
Disadvantages of EPF * Less disposable income
All of the EPF members are required to contribute 11% of his salary to EPF. Deducting 11% of salary would cause the contributors to be thrift to sustain his or her monthly living costs. The remaining 89% of the salary may not even be sufficient to cover his or her monthly expenses after paying car loan and mortgages. In other words, they will have less disposable income. * Difficulty in money withdrawal
EPF requires all the members to contribute money once per month but there is a restriction in the withdrawal. The funds in the account is not allowed to be withdrawn or before 50 years old. Upon reaching 50 years old, they only allowed to withdraw or make investment by using part of the total funds, for instance 30% of the total amount in account 2. Due to this restriction, the funds could not be withdrawn if there is any emergency case. EPF has less liquidity compared to other saving accounts. For example, Mr. A starts to contribute EPF since 25 years old. The funds that he contributed can’t be withdrawn or transfer until he reaches 50 years old. It means that along the 25 years, he can only contribute to the funds, but not withdrawing or transferring the money in the EPF account. * Less investment earning received
The money we have contributed to EPF cannot be withdrawn or transferred easily, so we cannot utilize it to make our own investment. Some people might think that, the money should be invested in other instruments that provide higher return and interest payment, rather than keeping it in the EPF account. For example, the amount of EPF Mr. A contributed is RM 20,000. If we do nothing to the money and receive only a little amount of dividend, it might not fulfill expected return of the members after considering the inflation rate. Thus, the RM20, 000 should be used in another way, such as investing in share market, unit trust and option as well. It may provide higher return compared to the return from EPF. * Inflation rate
According to Trading Economics, the inflation rate of Malaysia (Appendix 4) has risen from 1.8% in June 2013 to 3.4% in May 2014. (Trading Economics, 2014) The inflation rate is keep increasing year by year in Malaysia but the dividend rate of EPF could not keep up with the inflation rate (Appendix 5). Therefore, the dividend payment of EPF is not sufficient to fulfill the needs of members. For example, in year 2013, the dividend payment of EPF is 6.15% and the inflation rate in is 3.0%. After deducting the inflation rate, the real rate is only 3.15%. Hence, the real gain is actually decreasing. If the inflation rate is higher than the dividend rate in the future, we could earn nothing on it.

Comparison between Central Provident Fund (CPF) and Employees Provident Fund (EPF)
Employees’ Provident Fund (EPF) and Central Provident Fund (CPF) are introduced respectively by Malaysia government and Singapore government in the years of 1951 and 1955. Both of these funds are the two types of provident funds issued to the salaried employees. They are used in the different countries and different clauses.
EPF is contributed by the Malaysians who have salary while CPF is contributed by the salaried people of Singapore. EPF and CPF consist of 2 and 4 account respectively. The accounts under EPF are called Account 1 and Account 2 while the accounts under CPF are named as ordinary, special, medisave, and retirement. For EPF, the 70% of the contribution will go into the account 1 and the remaining 30% goes to the account 2. The 20% of the excess amount of the account 1 can be used to invest in the approved unit trust and the account 2 is for others approved purpose such as property acquisition, education, medical expenses, and investment. For the CPF, the savings of the ordinary account can be used to buy home, pay for CPF insurance, investment and education and the special account is for old age and investment in retirement-related financial products. For the medisave account, it is for hospitalization expenses and approved medical insurance. Retirement account under CPF is for retirement purpose.
For EPF, the contribution rate is totally fixed at 11% of the employees’ salary and 13% for the employers who have income less than RM 5,000 and 12% for the employers who have income more than RM 5,000. For CPF, the contribution rate is various. CPF’s contribution rate is based on the contributors’ age and it may maximum up to 36% of their salary. Contributors who are aged 35 and below should contribute 33% of their salary, breaking down to the employee’s share as 20% of his salary and 13% share of his employer.
Furthermore, the contributors of EPF are allowed to withdraw their retirement savings from EPF accounts for certain approved investment and for some emergency matters as well as settling down the housing loan and children’s education fees. Although they can do so, there also has some restriction for this which is the 40% of the total funds cannot be touched and some requirements need to be fulfilled if the contributors wish to withdraw their retirement savings from the EPF. For CPF, it is totally not allowing its contributors to withdraw money from the retirement account before the retirement date.
Lastly, the return for EPF is unstable relative to CPF. In the past 10 years, EPF’s dividend was fluctuating in the range of 4.75% to 6.35% (Appendix 1) based on the official website of EPF. (Employees’ Provident Fund, 2014) For CPF, it was considered stable in the past 10 years because the dividend paid to the contributors is same in the past 10 years. The dividends have been given to the separate 4 accounts which are ordinary, special, medisave, and retirement. For the special, medisave and retirement accounts are having 4% while 2.5% is given by the ordinary account. (Appendix 6) (CPF Interest Rate, 2014)

Aspect | Central Provident Fund (CPF) | Employees’ Provident Fund (EPF) | Targeted group | Salaried people of Singapore | Social Security tool for salaried people of Malaysia | Accounts under the funds | Ordinary Account, Special Account, Medisave Account, and Retirement Account | Account 1 and Account 2 | Contribution Percentage | Varied percentage based on age level | Fixed at 12% of the salary | Restriction | Funds that are under retirement account cannot be touched at all until the retirement date. | 40% of the total fund cannot be touched until the date of retirement | Return | Stable | Not stable |

Table 2: Summary of the major differences between CPF and EPF

Comparison between Private Retirement Scheme (PRS) and Employees Provident Fund (EPF)
Private Retirement Scheme was launched in Malaysia in July 2012. Currently, there are 8 intermediaries that have been approved by the Securities Commission as the PRS providers. It includes AmInvestment Management Sdn Bhd, American International Assurance Bhd, CIMB-Principal Asset Management Bhd, Hwang Investment Management Bhd, ING Funds Bhd, Manulife Unit Trust Bhd, Public Mutual Bhd amd RHB Investment Management Sdn Bhd.
The aim of PRS is to promote the retirees’ welfares by allowing people to contribute in the investment vehicle voluntarily, which is in complement with the mandatory contribution to the existing Employees Provident Fund (EPF).
Apart from nature of contribution, there are few differences between PRS and EPF in the aspect of amount of contribution, contribution frequency, custody of contribution, account for partial withdrawal, tax relief, selection of fund investments and dividend policy.
Regarding the amount of contribution, there is no minimum or maximum limit for PRS contribution; but there is a mandatory minimum for EPF contribution, in which the employees have to contribute 11% of his wages, and the employers contribute another 12-13% of the wages.
About the contribution frequency, there is no statutory interval for PRS contribution and makes it a flexible investment vehicle; whereas the EPF is a statutory monthly contribution, in which a fixed amount would be deducted from your wages periodically.
For custody of contribution, the amount will be contributed to individual PRS providers among the eight intermediaries stated above; while EPF is the sole custody for EPF contribution.
It is permissible to withdraw the balance from both PRS and EPF account. However, PRS investors can only make partial withdrawal from sub-account B once a year before their retirement ages, which is subject to 8% tax penalty; whereas EPF members are allowed to make partial withdrawal from Account 2 for specific reasons with no penalty.
The amount of tax relief for both PRS and EPF is different. A tax relief up to RM 3,000 a year would be given for PRS scheme, apart from tax relief of RM 6,000 a year provided for EPF scheme. However, the tax relief of RM 3,000 on PRS would stop people from contributing more than RM 3,000 to the scheme, according to Malaysian Employer Federation (MEF) executive chairman Shamsuddin Bardan. (The Star Online, 2013)
The PRS investors have the freedom to make their own choices on the selection of investment fund among PRS providers; while EPF members only have freedom on partial amount, under the Members Investment Scheme.
According to Malaysian Employer Federation (MEF) executive chairman Shamsuddin Bardan, “there is no minimum dividend promised by the Providers of PRS, all of the return would depend on the fund performance; however dividend of minimum 2.5% per annum is promised by the EPF.” (The Star Online, 2013) The highest dividend rate declared by EPF for the past decade was 6.35%, in year 2013.

Aspect | Private Retirement Scheme (PRS) | Employees Provident Fund (EPF) | Nature of contribution | Voluntary | Mandatory | Amount of contribution | No statutory minimum or maximum | Statutory minimum (11% by employee, 12-13% by employer) | Contribution frequency | No statutory interval | Statutory monthly contribution | Custody of contribution | Individual PRS providers | EPF Directly | Account for pre-retirement partial withdrawal | From sub-account B only, subject to 8% penalty | From account 2 only, for specific purposes and no penalty | Tax relief | RM 3,000 | RM 6,000 | Selection of fund investments | Freedom of selection | Freedom only on partial amount (EPF-MIS) | Dividend policy | No statutory minimum | Statutory minimum 2.5% p.a. |

Table 3: The summary of the major differences between PRS and EPF

The role of EPF in financial planning
Nowadays, Malaysians would like to plan their future well in term of finance as their financial literacy rate increases. They may use the retirement savings inside the EPF account to do investment, housing purpose, medical expense, and children’s education fees. * Investment
Furthermore, EPF is considered more flexible to its members and not only withdraws their savings for retirement at the age of 55 or 60, but also able to withdraw before the age of 55 to do their investment. EPF also allows the contributors to use the 20% of the total fund from excess above the basic saving amount (Appendix 2) in account 1 to invest in the approved unit trust scheme. So far, the standard of consultants in Malaysia who give advice to the customers in unit trust industry rises. Therefore, many Malaysians are willing to use their 20% of their excess amount in the account 1 to invest in unit trust industry because they believed that they will be having more dividends instead of the dividend of about 6% which is distributed by EPF between the years of 2011-2013 according to the official website of KWSP Malaysia. (Employee Provident Fund, 2014)
The minimum amount can be withdrawn by members for investment is RM1000 and it is calculated as:
(Account 1 savings – Basic Savings) x 20%
Members can invest the amount in Account 1 for investment to aim for potentially higher return and increase the wealth to support the retirement period. But, it does not mean that all the investment is allowed. Direct investment is not allowed. In other words, the amount can only be invested through appointed Fund Management Institutions and Fund Management Institutions Unit Trust Fund which both are approved by the Ministry of Finance.
Besides, members can only withdrawal their money in account 1 for the purpose of investment 3 months after the first withdrawal. Bear in mind, members have to invest in own risk because EPF is not going to compensate when members incurred any losses from the investment (Malaysia Investor, 2014) * Housing
EPF enable the contributors to use the savings from the account 2 to purchase a house or re-finance the house. This make the contributors feel easy because they could use their EPF savings to make the down payment of the house. However, there are some conditions to withdraw to purchase a house (Appendix 6).
Subsequently, many people still face the problem of buying a house even they fulfill the conditions set by the company as above. Since the amount eligible to withdraw to purchase a house by using EPF is based on the rules and regulations that are set by the KWSP (EPF). There are few types of calculation in different situation of buying a house.
The first situation is called house purchase from an individual. In this situation, the one who want to buy a house is able to withdraw the amount that is difference between the housing price and the loan amount plus an additional 10% of the house price or all his savings in Account 2 (Whichever is lower but not less than RM 500). This means that the minimum amount of account 2 cannot be less than RM 500.
Formula for situation 1: Purchase from individualsFormula: (Housing Price – loan amount) + (Housing Price * 10%) |

Secondly, if an individual want to buy a house by cash, the calculation is almost the same with the situation 1 above. The only difference is there is no housing loan because the buyer wants to buy a house by cash. So, there is no amount for housing loan but the minimum amount of account 2 must be at least RM 500
Formula for situation 2: Individual Purchase by CashFormula: (Housing Price – loan amount) + (Housing Price * 10%) |

Thirdly, if a spouse wants to buy a dream house for their married life, they can withdraw their EPF savings to joint purchase the house. The amount eligible for them to withdraw is maximally up to 10% of the housing price or all the savings in each buyer’s Account 2 subject to maximum amount eligible for withdrawal (Whichever is lower but not less than RM500).
Formula for situation 3: Joint purchase with spouse or other individualFormula: (Housing Price – loan amount) + (Housing Price * 10%) |

Lastly, if one wishes to buy a housing lot and building a house on it simultaneously, the elements inside the calculation have slightly different with the previous 3 situations. It adds in the price of the land, cost of construction of the house into the account. However, the minimum amount of account 2 also must be at least RM 500.
Formula for Situation 4: Purchase a housing lot and building a house on it simultaneouslyFormula: (The Price of The Land and Cost of Construction of The House - Total Housing Loan To Purchase The Land and To Build The House) + (The Total Price of The Land and Cost of Construction of The House * 10%) |

In a nutshell, contributors can calculate the EPF’s savings amount eligible for them to withdraw if they desire to purchase a house either with applying housing loan or paying cash. They may choose either way that most benefits them for purchasing their dream house by using their EPF‘s savings after calculation. Hence, they can reach their financial planning as they expected by using smartly of the savings of EPF.

Details | Amount (RM) | | Purchase from individual | Cash | Joint purchase | Purchase a housing lot and building a house on it | Price of the house | 150,000 | 150,000 | 150,000 | 150,000 | Housing loan | 120,000 | NIL | 120,000 | 120,000 | Difference between price of the house and housing loan | 30,000 | 150,000 | 30,000 | 30,000 | Additional 10% of the price of the house | 15,000 | 15,000 | 15,000 | 15,000 | Maximum amount eligible for withdrawal | 45,000 | 165,000 | 45,000 | 45,000 | Available balance in account 2 | 50,000 | 50,000 | 50,000 | 50,000 | Amount that can be withdrawn | 45,000 | 49,500 | 45,000 | 45,000 |

Table 4: 4 methods of calculating the maximum eligible amount from account 2 that can be withdrawn.

* Medical payment
Undoubtedly, nothing can be predictable precisely in this world. It includes the financial plan. Sometimes, people may have trouble when something emergency like disease happens to them. It is possible that medical bills these days may put you into a poor house if you want to be treated quickly. And now, EPF may help the contributors to settle down their business. The contributors are allowed to withdraw their savings from EPF account 2 to settle their pricy medical payment. However, they are also required some conditions to be fulfilled if want to make EPF’s savings withdrawal. Only the critical illnesses (Appendix 7) which are approved by the board of EPF are allowed for the contributors to withdraw their EPF’s savings. * Children’s education fees
In addition, education is much more important than everything. But, the education and living fees are costly for those who come from the poor family but have potential and interest to the studies in case they are not applicable with any student loans that have been issued by government. Further, they will lose their competitiveness advantages if they compete with competitors who are undergraduates or above if they are just in high school levels. Therefore, EPF able to help the contributors to withdraw their savings from EPF account 2 to help their children to further their studies. * Retirement
The main reason to have EPF is for retirement purpose. Although the financial literacy of Malaysians increases, yet still many Malaysians don’t know how to use their money wisely. Nowadays, people always waste their money on unnecessary things such as luxury goods, overmuch entertainment, and the worst is bet. Therefore, EPF helps them to save their partial money in case they don’t have sufficient money for their retirement life. It is better to have EPF and ease people who want to have their own financial plan because EPF is already planned for their retirement life, what they want to concern is the part of lifetime that is before retirement date which is age of 60.

Conclusion/Recommendation
According to survey conducted by the EPF, the average life expectancy of the Malaysian population is 75 years. Currently, a private sector employee retires at the age of 60 years. If a person wants to live comfortably after his retirement, with a monthly commitment of RM 1,200, he will need to have at least RM 216, 000 in his EPF account when he retire to sustain his living for 15 years. However, 72% of EPF members aged 54 years in 2011 have savings of RM 50,000 and below. 50% of retirees even spend their entire EPF savings within 5 years. (Kumpulan Wang Simpanan Pekerja, n.d.)Therefore, in order to increase retirement savings of the members and prevent the members from spending all of their savings in a blink of eye, some improvements to the EPF scheme has been made.
The first initiative taken is that, the percentage of retirement savings in Account 1 has been increased from 60% to 70%. It means that the contribution to Account 2 would be decreased from 40% to 30%. Hence, there is less funds available in the Account 2. A person would then consider carefully and think twice before utilizing the funds in Account 2. For instance, he would not purchase a bungalow instead of an apartment due to higher down payment for bungalow is required. If he spends a huge amount in his Account 2, he might have to struggle for the children’s education fees and medical costs, if there is any unpredicted tragedy.
The second initiative taken is that, Flexible Age 55 Years Withdrawal is introduced. This allows members to choose to withdraw all their saving at once, monthly, partially or a combination of the choices. Anyway, it is advised that one should withdraw the savings on a monthly basis. The withdrawal of the money should be an amount that is sufficient to support your monthly expenditure, but not for you to purchase luxurious items such as branded handbags or belts. The worst circumstance that you have to face after spending all your EPF is that you have to be re-employed.
Last but not least, the mandatory contribution period from 55 years has been extended to 75 years, if the members are still employed. It is a kind of forced savings that benefits the contributors, especially those who do not save regularly, tend to spend on impulse or do not have any insurance policy. Regular medical check-up should be performed to ensure a healthy life. This enables you to work longer and increase your retirement savings in EPF. Moreover, you can save on your medical expenses and utilize the savings for other purposes such as acquiring a house for investment, either capital gain or monthly rental income.
Despite the benefits of EPF is quite attractive, some smart investors do not rely solely on the EPF and would find his own way to increase the retirement savings. A good investment should be diversified in different asset classes. Hence, a retiree that possesses a large sum of money would usually invest in the capital market. He would invest in bonds or equities. However, bond is preferable due to lower fluctuation in the price and return. The coupon payment for the bond is also fixed throughout the tenor.
Property is also one of the investments that provide good return, as property can hedge against the inflation. For those who have the ability to purchase a property, he could either rent out the property and receive monthly rental, or sell the property after a period of time to earn capital gain. However, disposal of a property is subject to real property gain tax (RPGT). The RPGT levy is usually 10% on gains from the disposal of the property sold within two years of purchase and 5% if sold within two to five years. On the other hand, those who are not capable of purchasing a property can also consider in diversifying their investment in Real Property Investment Trust (REIT). REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. There is a better tax consideration if investing in REIT. Provided that the REIT distributes at least 90% of its total taxable income to its unit holders in a particular year, the investment income from REIT would be exempted.
In addition, one should never miss out on the health insurance. It would be better if one can afford to go for comprehensive package. As people grow older, we are exposed to more health problems and illness. Health insurance could play a role in reimbursing our medical costs. It is very crucial especially during the economy expansion due to high inflation rate.
Moreover, the education fund of the children, if you have any, should be set aside during their young ages. It is even costly and burdening if you wish to let your children to further their studies in better fields such as medical, law and actuarial science overseas. Even though we can pay the children’s tuition fee in tertiary studies using EPF balance, but it would be better if we could retain the balance and use it for other purposes such as investments.
In conclusion, we must have a proper financial planning that varies accordingly with our life cycles. We should monitor our goals from time to time. We should also compare the income and expenses periodically so that we can make improvements on our budget and planning.
Reference
Websites
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Appendix
Appendix 1: Historical of EPF declares an annual dividend on funds on deposit since 1952. Year | Dividends | | Year | Dividends | | Year | Dividends | 1952 | 2.50% | | 1973 | 5.85% | | 1994 | 8.00% | 1953 | 2.50% | | 1974 | 6.60% | | 1995 | 7.50% | 1954 | 2.50% | | 1975 | 6.60% | | 1996 | 7.70% | 1955 | 2.50% | | 1976 | 7.00% | | 1997 | 6.70% | 1956 | 2.50% | | 1977 | 7.00% | | 1998 | 6.70% | 1957 | 2.50% | | 1978 | 7.00% | | 1999 | 6.84% | 1958 | 2.50% | | 1979 | 7.25% | | 2000 | 6.00% | 1959 | 2.50% | | 1980 | 8.00% | | 2001 | 5.00% | 1960 | 4.00% | | 1981 | 8.00% | | 2002 | 4.25% | 1961 | 4.00% | | 1982 | 8.00% | | 2003 | 4.50% | 1962 | 4.00% | | 1983 | 8.50% | | 2004 | 4.75% | 1963 | 5.00% | | 1984 | 8.50% | | 2005 | 5.00% | 1964 | 5.25% | | 1985 | 8.50% | | 2006 | 5.15% | 1965 | 5.50% | | 1986 | 8.50% | | 2007 | 5.80% | 1966 | 5.50% | | 1987 | 8.00% | | 2008 | 4.50% | 1967 | 5.50% | | 1988 | 8.00% | | 2009 | 5.65% | 1968 | 5.75% | | 1989 | 8.00% | | 2010 | 5.80% | 1969 | 5.75% | | 1990 | 8.00% | | 2011 | 6.00% | 1970 | 5.75% | | 1991 | 8.00% | | 2012 | 6.15% | 1971 | 5.80% | | 1992 | 8.00% | | 2013 | 6.35% | 1972 | 5.85% | | 1993 | 8.00% | | | |

Appendix 2: Basic savings requirement Basic Saving (RM) | Age | Current | Jan 2014 | Difference | 18 | 1,000 | 1,000 | - | 19 | 2,000 | 2,000 | - | 20 | 3,000 | 4,000 | 1,000 | 21 | 4,000 | 5,000 | 1,000 | 22 | 5,000 | 7,000 | 2,000 | 23 | 7,000 | 9,000 | 2,000 | 24 | 8,000 | 11,000 | 3,000 | 25 | 9,000 | 13,000 | 4,000 | 26 | 11,000 | 15,000 | 4,000 | 27 | 12,000 | 18,000 | 6,000 | 28 | 14,000 | 21,000 | 7,000 | 29 | 16,000 | 24,000 | 8,000 | 30 | 18,000 | 27,000 | 9,000 | 31 | 20,000 | 30,000 | 10,000 | 32 | 22,000 | 34,000 | 12,000 | 33 | 24,000 | 37,000 | 13,000 | 34 | 26,000 | 41,000 | 15,000 | 35 | 29,000 | 46,000 | 17,000 | 36 | 32,000 | 50,000 | 18,000 | 37 | 34,000 | 54,000 | 20,000 | 38 | 37,000 | 59,000 | 22,000 | 39 | 41,000 | 64,000 | 23,000 | 40 | 44,000 | 69,000 | 25,000 | 41 | 48,000 | 76,000 | 28,000 | 42 | 51,000 | 81,000 | 30,000 | 43 | 55,000 | 88,000 | 33,000 | 44 | 59,000 | 95,000 | 36,000 | 45 | 64,000 | 102,000 | 38,000 | 46 | 68,000 | 109,000 | 41,000 | 47 | 73,000 | 117,000 | 44,000 | 48 | 78,000 | 125,000 | 47,000 | 49 | 84,000 | 134,000 | 50,000 | 50 | 90,000 | 143,000 | 53,000 | 51 | 96,000 | 153,000 | 57,000 | 52 | 102,000 | 163,000 | 61,000 | 53 | 109,000 | 174,000 | 65,000 | 54 | 116,000 | 185,000 | 69,000 | 55 | 120,000 | 196,000 | 76,000 |

Appendix 3: Top 30 equity investments No. | Share | % Holdings | 1. | Malaysia Building Society Bhd | 64.70% | 2. | RHB Capital Bhd | 41.34% | 3. | Malaysian Resources Corp Bhd | 38.87% | 4. | Alliance Financial Group Bhd | 17.10% | 5. | UMW Hldgs Berhad | 17.03% | 6. | Media Prima Bhd | 16.94% | 7. | Shell Refining (FOM) Bhd | 16.72% | 8. | MBM Resources Bhd | 16.13% | 9. | Genting Plantations Berhad | 15.98% | 10. | CIMB Group Holdings Bhd | 15.94% | 11. | Public Bank Bhd | 15.45% | 12. | AMMB Holdings Bhd | 15.11% | 13. | IJM Plantations Bhd | 14.99% | 14. | Malayan Banking Berhad | 14.94% | 15. | Hong Leong Bank Bhd | 14.26% | 16. | Kuala Lumpur Kepong Bhd | 14.18% | 17. | UTD Plantation Berhad | 14.00% | 18. | Petronas Gas Bhd | 13.55% | 19. | Sime Darby Berhad | 13.51% | 20. | Tenaga Nasional Bhd | 13.14% | 21. | Malaysia Airport Holdings Bhd | 13.05% | 22. | KPJ Healthcare Bhd | 13.00% | 23. | Digi.Com.Berhad | 12.77% | 24. | Dialog Group Bhd | 12.47% | 25. | Axis Reit Managers | 12.29% | 26. | Axiata Group Bhd | 12.12% | 27. | Petronas Chemicals Group Bhd | 12.06% | 28. | Sapura Kencana Petroleum Bhd | 11.84% | 29. | Pos Malaysia Bhd | 11.68% | 30. | WCT Berhad | 10.79% |

Appendix 4: Malaysia inflation rate from June 2013 to May 2014

Appendix 5: The percentage of inflation and EPF dividend rate from 1996 to 2011

Appendix 6: CPF interest rate from 2011 to 2014

Appendix 7: Conditions to withdraw from account 2 to purchase a house

Appendix 8: List of critical illnesses that is approved by the board of EPF