EPF Contribution
Historically, employees contribute 11% of their monthly salary while their employers contribute 12% of your monthly salary. All together, 23% of your monthly salary is contributed to your EPF account.
Start from January 2009, government allow employees to reduce their EPF contributions voluntarily from 11% to 8% for two years until Dec 2010. Voluntarily means you can either choose to contribute 11% or 8%. However, members who wish to maintain their 11% contribution rate can still do so by filling up Form KWSP 17A (AHL) and handing it to their employers for submission to EPF. Contribution rate will automatically adjusted to 8% if no request from the members.
Recovery from turbulence economy can be seen from various sector such as banking, unemployment and production. Therefore, government revert the contribution rate to 11% start from Jan 1, 2011. You can also do it right now by filing up the form.
The reduction of percentage contribution will increase the employee’s disposable income and thus increase their spending. In turbulence economy time, market need consumer to spend more to stimulus the economy. With 3% reduction, you can generate around hundred ringgit more to spend. This is what the government really want. SPEND IT!
So what is the pros and cons from it?
Pros: More money to spend
With 3% reduction means you have more take home salary to spend ( you are
spending your future money instead)
Cons: Less money for retirement
You contribute less to EPF which means you have less money for retirement
Higher taxable income
You need to pay more to government as you have higher income
Obviously, cons are more than pros. Therefore, it is better to filling up the form to remain 11% start January 2009 or you can do it so after Budget 2010 to revert to 11% voluntarily.
From one perspective there could be a huge benefit from the big picture. If the 1% is flowed into the consumers pocket, more money will flow into the market, probably billions of ringgits is freed up every month – i’m talking about money flowing into stock market, retailers, shopping mall, service sector, etc. This will boost inflation and stock market liquidity thus will push up the stock price. But the important question here should be; do you have enough financial education to use that money, otherwise you might end up helping other people to get rich by spending the 1%.
[Reply]
Mrcoolku Reply:
December 1st, 2009 at 12:30 pm
Ya, that is what our PM hope for to stimulus the economy in downturn. You have the pros and cons.
[Reply]