The government announced in Budget 2021 that from January 2021 to December 2021, employees must contribute 9% of their monthly salary to EPF instead of the usual 11%, for employees below 60 years old.

The option to lower EPF contributions from 11% was mainly given to help workers have more take-home pay if they had to take a pay cut during the Covid-19 crisis.

But earlier this year, the government had already announced that workers could choose to lower their contributions to 7%. This was also to help workers through the crisis. So, by January 2021, those who had lowered their EPF contributions to 7% will actually have to raise it again – to 9%. Although this is lower than the usual 11%, it’s still something workers will have to look out for. 

EPF members who want to keep on contributing 11% of their salary have to fill in Form KWSP 17A (Khas 2021) available on EPF’s website. They need to submit their form to their employers, who will then send it to EPF. Employers’ contributions to EPF however, will stay the same – If you earn RM5,000 or below a month, your employer is required to contribute 13% of your salary to your EPF and if you earn more than RM5,000, your employers contribute 12%. 

But whether you’re now contributing 7% and have to raise your contributions to 9%, or if you’re still saving 11% of your salary in EPF and are thinking about lowering to 9%, let’s look at how it’ll affect you. 

1. More or less cash?

2. More or less retirement savings?
   Let’s say you earn RM4,000 a month. The table below shows how much you can save in a year, if you pay 7%, 9% or 11% of your earnings to EPF, along with the 13% contributed by your employer. The higher your monthly contributions, the more retirement savings you’ll have. The table below shows how much you could save in a year depending on the percentage of your EPF contributions. You can also use our retirement calculator to figure out how much you should save for your retirement.

How much you can save in EPF in a year

Employee EPF contribution (monthly)	7% (RM280)	9% (RM360)	11% (RM440)
Employer EPF contribution (monthly)	13% (RM520)	13% (RM520)	13% (RM520)
Total savings in a year (minus dividend)	RM57,600 (RM280 x 12 + RM520 x 12)	RM58,560 (RM360 x 12 + RM520 x 12)	RM59,520 (RM440 x 12 + RM520 x 12)

3. Dividends you can earn
   Your EPF savings earn a guaranteed return of 2.5% every year. From 1999 to 2019, EPF has been paying an average dividend of 5.61% a year. The more you contribute to EPF, the more dividends you can earn, because your dividend payments are based on your overall total savings.
   So, if you have to raise your contribution from 7% to 9%, you’ll not only increase your retirement savings, but also increase your dividend payments.
   But if you lower your contribution from 11% to 9%, you’ll have less retirement savings and dividend payments. And the more you contribute, the more you’ll get in dividends. So if you can afford it, it’s probably safest to keep your contribution at 11% so you can get maximum returns from your EPF savings.

4. Tax relief
   You can claim up to RM4,000 tax relief every year if you contribute to EPF.  So the more you contribute, the more you can deduct from your chargeable income up to a maximum of RM4,000. This will reduce the amount of tax you have to pay.So, if your contributions go up to 9% from 7%, you can claim more tax relief. If you’re contributing 11% and lower it to 9%, this might reduce the tax relief you can claim, increasing the tax you have to pay. But remember, this would depend on your current situation, since the tax relief is only up to RM4,000.
   Feeling brainy?

   For example, Siti is a single HR executive. She earns RM3,000 a month, or RM36,000 a year. She’s trying to decide how much she should contribute to EPF to claim more tax relief. She has no other tax reliefs.The table below shows how much income tax Siti needs to pay if she contributes 7%, 9% or 11% to EPF. She can claim a RM500 tax rebate on zakat but has no other tax reliefs or rebates to claim.
   *Disclaimer: Actual tax benefits may depend on your individual situation and income.
   How much income tax Siti needs to pay

   Percentage contributed to EPF	7%	9%	11%
   Total tax payable	RM871.20	RM794.40	RM717.60

So, what’s your next step?

Your next step will depend on if you need to raise your contributions to 9% from 7%, or if you’re going to lower your contributions to 9% from 11%. 

As we said before, if you need to increase to 9% and so will have less take-home pay every month, you can read our guide on planning and budgeting or use our budget calculator to help you manage your new financial situation. You could also read our money-saving tips or use our savings calculators to help you achieve your goals.

But if you can afford it, you should keep contributing at 11% because it will help you be better prepared for your retirement. You’ll also get more dividend payments and you might be able to claim more tax relief. 

For more information on your contributions, you can refer to EPF’s website or contact EPF at  03-8922 6000 (Mon – Fri 8.00 am – 5.00 pm).

To learn more about planning your finances for retirement, read our guide on retirement planning and saving for your retirement with EPF.