06Nov Would you contribute less to EPF?
With the latest proposal by the Government that employees can now opt to contribute 8% of their salary towards their EPF account versus the current compulsory rate of 11%, would you care to contribute the lesser amount? If you are keen to contribute less and therefore have more income in hand, I hope it is for good reasons and not taken as extra money to spend or pay your bills. If at all you decide to contribute less towards your retirement fund, it should be because you have found good investments to put your extra disposable income into.
At first when I heard the news of this option, I did not quite agree to the concept of it, which is to boost the economy with some extra RM4.5 billion available as consumer spending fund. When put that way, everyone will tend to think that it’s a good option to contribute less and have more to spend now. But remember that many studies have shown that we are currently not saving and doing enough to ensure we have sufficient savings for old age. This move to decrease 3% of your contribution on a monthly basis will only ensure that you have less of future savings.
You may ask, with only 3% difference in contribution, which may only value at some couple hundred Ringgit, what can you invest in? You can still do so even if it’s just a couple hundreds a month. You can choose to set aside that extra and save it up to a substantial amount to be invested at one go, or you can invest the hundreds on a monthly basis, either into unit trust funds or equities. You can buy them by hundreds of units and not in the thousands. If you feel that the fees or brokerage fees you need to pay for these monthly investments are too much, you can always find alternatives. For example, you can opt for online trading to purchase your unit trusts and stocks. Online trading normally charges a lot lower brokerage fees than a human remisier or a unit trust agent. For online stock trading, you can have a look at some options from Maybank, CIMB and Hong Leong amongst others, and Fundsupermart for your unit trust trading.
Having said the above, I am for the idea of contributing less provided that the extras I have in hand are invested and not spent. And hopefully they are invested in something that will give me more returns than the returns (annual dividends) from EPF.
Are you for or against contributing less to your EPF?
November 6th, 2008 at 10:14 am
I am not for it, as i think the sum is too lil to make any difference to the economy and secondly, it’s even more riskier to invest than now…
The worst scenario would be losing pension benefits and losing the investment at the same time
November 6th, 2008 at 4:16 pm
It is a proven method to spur spending. Unfortunately the sad reality of today’s economy is that every disposable sen at consumer’s hand is spent and not saved. So the boost to the economy will be there is everyone chooses to contribute only 8% and may not be as marginal as it seems.
November 6th, 2008 at 5:35 pm
This is actually a good move in my opinion. It’s not too big a figure, and not too small. And why do I think it’s a good move? Because it gives you the flexibility to use your money. If you put it in EPF, you can’t take it. But if you have the cash with you, you can easily take it, and invest it somewhere.
And I really think it’s a good thing to have.
But that’s coming from an investor’s point of view. The problem here is that most Malaysians spend money like water. They don’t really think much when it comes to spending even though the economy situation is obviously in a bad shape (unless they don’t read news and don’t talk to people, else they should know). This WILL indeed boost consumer spending, but there’s no point if at the end of the day, they keep spending and end up have no money to pay the debts.
Furthermore, they spend more on branded stuff - funding other countries and not our own.
So it really depends on which perspective you’re looking at. If you’re an investor and someone who handles money well, this new ruling allows you to have more cash to invest or control. But if you’re not and if you’re someone who needs others’ help in investment, then maybe it’s best not to switch to the new ruling.
November 7th, 2008 at 10:06 am
Freethinker, in that case, do remember to inform your employer that you’re not for it because it has just been confirmed that the reduction will happen automatically.
Fat4, yupe, it’s only human to spend what we deem as extra income. It takes a lot of discipline not to be tempted.
Alvin, good point there about how we’re boosting foreign economies through our purchases of branded goods. Didn’t occur to me, perhaps didn’t occur to the government too!