What is EPF, and Why Should Foreign Employees Care?
As an expat or foreign employee in Malaysia, there are numerous ways for you to build up your retirement savings, whether it is through diversifying investments or developing a comprehensive retirement roadmap with your financial advisor.
The Employees’ Provident Fund (EPF) is Malaysia's national pension savings scheme, similar to an IRA/401K or a UK state pension. It's designed to help individuals build retirement savings through contributions from both the employer and employee. If used as a part of a sound financial or investment plan, the EPF can enhance your retirement savings.
New in 2025: Mandatory EPF Contributions for Foreign Workers
In March 2025, the Malaysian government introduced a new EPF act mandating both foreign workers and their employers to contribute 2% of salaries to the EPF, as an initiative to bolster the overall EPF fund. The policy's specifics remain unclear, however, it is expected to take effect in the fourth quarter of 2025.
This marks a major shift in how EPF applies to foreign workers. Previously, contributions were optional unless you were a permanent resident.
How Much is the EPF Contribution for Foreign Workers?
Expats working in Malaysia can opt-in to contribute towards EPF, as long as the employer agrees to contribute. However, the contribution requirements will differ depending on the employee’s status.
If you hold a Permanent Resident status or have registered as a member before August 1st, 1998, then you would need to have a minimum monthly salary of RM5,000 and above and contribute a percentage of your salary based on the following:
- Stage 1 (Below 60 Years)
- Employee contribution: 11%
- Employer contribution: 12%
- Stage 2 (Aged 60 and above)
- Employee contribution: 5.5%
- Employer contribution: 6%
Suppose you registered as a non-Malaysian member after August 1st, 1998, in that case, there will be no minimum requirement for your monthly salary. Your contributions will be as follows:
- Stage 1 (Below 60 Years)
- Employee contribution: 11%
- Employer contribution: MYR 5.00
- Stage 2 (Aged 60 and above)
- Employee contribution: 5.5%
- Employer contribution: MYR 5.00
It is important to note that both employers and employees have the option to contribute more than the minimum amount, which some employers do offer as a benefit for the employee’s pension.
Where Does your EPF Money Go?
As to how your funds are allocated in EPF, in May 2024, EPF officially restructured the way it allocates its contributions. Previously, members would have two accounts, Account 1 and Account 2, whereby the first account would hold 70% of the contributions and Account 2 would hold 30%.
Now the accounts are split into three:
- Account 1 (Akaun Persaraan): Accessible only at age 55 and holds 75% of contributions.
- Account 2 (Akaun Sejahtera): Able to withdraw for specific usages such as housing or education and holds 15% of contributions.
- Account 3 (Akaun Fleksibel): A new flexible account that can be withdrawn at any time and holds 10% of contributions.
So, How Can I Withdraw my EPF When I Want to Return to my Home Country
It depends on your membership type.
Non-Malaysians who hold Permanent Residents and are members registered before August 1998 will have access to all of the withdrawal options available, such as being able to do a partial withdrawal or a monthly payment withdrawal.
For expats who became members after August 1998, you are only able to do full withdrawal from the entire account once you have reached the age of 55. There are, unfortunately, no other withdrawal options available for expats, such as the ability to schedule a monthly withdrawal on EPF’s dividends.
The Benefits of EPF for Foreign Employees in Malaysia
Since EPF contributions for foreign workers are not mandatory and the withdrawal options are very limited, you might wonder why you might be asking:
Is the EPF worth it?
There are certain unique benefits that EPF offers as a pension fund that can be quite beneficial for expats who intend to retire in Malaysia or stay long enough to reap its rewards.
EPF “Guaranteed” Dividend Returns
By law the EPF is required to provide a government-guaranteed minimum dividend rate of 2.5% p.a., which can be a significantly higher rate than most savings accounts or fixed deposits in Malaysia. This also makes EPF a more secure investment option compared to other volatile markets. However, since 2009, the EPF has been offering average dividend rates above 5% per year.
Tax Savings on EPF Contributions
Contributions to EPF are tax-deductible to a certain limit, which can help reduce your taxable income, especially if you are still working in Malaysia. The amount of tax relief you can get for EPF contributions specifically is capped at RM4,000 per year, but if you were to combine it with life insurance, it can be as high as RM7,000.
Tax-free EPF Withdrawal
EPF withdrawals after the age of 55 are considered tax-free withdrawals, ensuring you get the most out of your retirement savings. Any withdrawals before the age of 55 from Account 2 for purposes such as medical expenses or purchasing a house are also considered tax-free withdrawals.
If you decide to leave the country permanently, EPF allows you to fully withdraw all of your funds in one lump sum. However, it is important to plan your withdrawals as you could still face income tax if you were to bring it back to your home country.
This is where it becomes important to consult with a Private Wealth Manager. Our team is equipped to help you restructure your wealth to mitigate taxes.
Challenges of Contributing to EPF as a Foreign Employee
Despite the benefits EPF provides, there are still key challenges and drawbacks.
Currency risk is a major challenge as the EPF fund returns are calculated in Malaysian ringgit, instead of the USD or GBP. As such, any currency shifts that the ringgit suffers can affect your funds and your overall purchasing power.
Another major challenge is the lack of control over the investment strategy, as EPF does not share or offer a clear view of the types of investments being made using your funds. This can severely restrict your ability to take on more risky investments, as you are locked into what the EPF invests.
Should you Keep your EPF Savings or Reinvest Elsewhere?
With average dividends of around 5%, Malaysia's EPF offers stable returns, but is it the most efficient use of your savings? For some expats, their EPF account holds over RM1 million - funds that could potentially be restricted or partially reinvested for greater flexibility and long-term growth.
Our Private Wealth Managers specialise in developing bespoke strategies to help you maximise your EPF funds to protect your retirement lifestyle.
That’s why we’re offering FREE access to our webinar recording on the Employees Provident Fund (EPF) framework, where we help you understand how to maximise your retirement savings while maintaining financial flexibility in Malaysia.
Request now via this link.
The EPF isn't just another deduction on your payslip. It could be a powerful part of your long-term wealth-building strategy. Get informed, plan ahead, and make sure your savings are working for you.
If you are ready to maximise your retirement savings using EPF, schedule a one-on-one complimentary discussion with our Private Wealth Managers by contacting us.
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