This article first appeared in The Edge Malaysia Weekly on February 10, 2025 - February 16, 2025

Have you opened an EPF account for your children?” is my standard reply to peers who ask whether they should be worried about their savings with the Employees Provident Fund because of news that the fund would be part of a consortium, alongside Khazanah Nasional Bhd, that is privatising the airport operator.

For those with fur-kids, my standard reply is either “Did you know you can raise your EPF contribution from 11% to basically 100% if you want to save more than the current RM100,000 a year with the EPF?” or “Did you know the EPF is raising the threshold for withdrawals above RM1 million to RM1.1 million in 2026, RM1.2 million in 2027 and RM1.3 million in 2028?”

Yes, you read that right. The RM100,000 annual cap for voluntary contributions does not currently take into account the amount deducted from your salary, even if it is above the 11% statutory threshold.

And, yes, EPF announced it would raise the withdrawal threshold to RM1.3 million in stages from January 2026 when it refreshed its recommended basic savings of RM240,000 (RM1,000 a month for 20 years) by age 55 to RM390,000 in basic savings by age 60. That RM390,000 is 60% of what EPF calls “adequate savings” of RM650,000 by age 60, but the fund would like members to aim for “enhanced savings” of RM1.3 million by age 60 — which is why the withdrawal threshold of above RM1 million is being adjusted higher (Click here to read the article “EPF’s new savings guide a small step towards better retirement”, The Edge, Dec 16, 2024).

Back to those who have children aged above 14, a spouse or parents aged below 60 or who are self-employed. Under the i-Saraan scheme with EPF meant for self-employed individuals under age 60, the government is providing a 20% matching incentive of up to RM500 a year for savings made with EPF that allows accounts to be opened from age 14. So, yes, your 14- or 15-year-old who is still in school is eligible for a lifetime incentive of up to RM5,000 from the government.

When The Edge published the article highlighting “why you should open an EPF account for your 14-year-old” in August 2024, the matching grant was also RM500 a year but capped at 15%, which meant you would need to contribute RM3,334 a year to get the maximum grant of RM500 a year (Click here to read the article “Mandatory EPF coverage can boost retirement adequacy, widen success of i-Saraan incentive”, The Edge, Aug 19, 2024).

With the matching grant revised higher to 20%, you only need to contribute RM2,500 a year to get the maximum RM500 annual matching grant. As the lifetime limit is RM5,000 a person until the age of 60, anyone who is below 50 can actually go for the maximum amount over 10 years.

The compounding effect of saving early and dividends from EPF is the highest if one starts at age 14.

If you gave your 14-year-old RM2,500 a year (RM208.33 a month) for 10 years to claim the maximum RM5,000 incentive under i-Saraan, he or she will have close to RM45,000 by age 24, assuming a 5% annual dividend from EPF.

Even if he or she contributes nothing to EPF from age 25 to 55, that RM44,751 will grow to RM203,084 by age 55 and RM259,192 by age 60 — that is a quarter of a million ringgit in retirement savings with only 10%, or RM25,000, coming from self-contribution; 2%, or RM5,000, from the government matching grant; and 88%, or RM229,192, from the compounding effect of saving early with EPF, assuming 5% annual dividends.

Even if your 14-year-old contributes only RM1 a day to EPF from age 25 to 60, that RM44,751 will grow to RM295,921 by age 60 — with 84%, or RM249,781 being the compounding effect from consistent savings and 5% dividends with EPF. Only RM41,140, or 14%, is self-contribution, with RM5,000, or 2%, from the government.

Where is the half a million ringgit?

If your 14-year-old continues to save RM2,500 a year when he or she reaches the age of 25 and keeps that up until he or she reaches 60, that pot would grow to RM510,762 by age 60 — with only RM118,000, or 23%, self-contribution over 47 years; the government contributing 1%, or RM5,000; and the remaining 76% coming from the compounding effect of saving early and consistently with 5% annual dividends from EPF.

“With EPF buying the airport, possibly tapped for national service, will dividends still be good in future?” I was asked. My reply: “Dividends should be easily more than 5% for 2024 and EPF is under constant pressure to deliver on its investments. To know more about how EPF dividends may be in 2025 and beyond, please subscribe to The Edge.”

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