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Sunday, November 6, 2016

EPF's Akaun Emas - What you need to know

I am for EPF's move to lock in savings until contributor turns to 60. There is word flying around that EPF will run of out money due to our government's overspending but that is largely bollocks. First EPF is independently run by professionals which has performed well over the years. Second EPF is bound a myriad of rules and regulations that bars it from investing recklessly. Third why on earth would our MO1 KowTow to China for funding if it could easily get it from EPF.

Whether you know it or not Malaysia is heading towards being classified as an ageing society by the year 2035 (only 19 years from now). Ageing here mean that individuals above 60 years make up a larger proportion of the total population (>15%). This is evident as life expectancy is rising (more than 75) and fertility is decreasing (an average family now has 2 kids compared to half a dozen 25 years ago). 

Tightening EPF withdrawal rules is not good enough. Hence the move to establish the Akaun Emas. This was done after following the Members Consultation Exercise last year. A total of 94% of respondents overwhelmingly agreed for the EPF to maintain the Age 55 withdrawal, with new contributions from age 55 to 60 to be locked in until age 60, hence the introduction of Akaun Emas.
Okay even a summarized chart might be technical for some folks. Let me help you with that.

[1] Below 50 and At 50 - no changes. You already know what you know now.
        - Seventy per cent of contributions goes into Account 1 and 30% goes into Account 2.
        - You can withdraw from Account 1 at age 55 only.
        - You can withdraw from Account 2 at any age subject to eligibility.
[2] At 55 - starting next year Jan 1 2017, everything will be transferred to Akaun 55.
[3] From 55 to 60 - you can still contribute while working but to the new Akaun Emas.

***The addition of Akaun Emas does NOT impact what we currently have AT ALL. Please don't listen to false rumours/fake news that govt is extending withdrawal to keep it for themselves - all those are bollocks

Other important notes:
- You will still get dividends from your Akaun 55 and Akaun Emas even when you are aged 56 to 60.
There will be no difference in the annual dividend payout % between both accounts to be fair to all EPF members.
- You can still make a full withdrawal from Akaun 55 from age 55 to 60. You cannot however withdraw any amount from Akaun Emas unless you are 60 years old and above.
- At age 60 both Akaun 55 and Akaun Emas will be combined. Name of account not known.
- If you are terminally ill say at age 58 you can withdraw from Akaun Emas under the Incapacitation Withdrawal scheme.

One short disclaimer. Aboi says that moving forward EPF returns will not likely be as good as it was in the last few previous years. Considering that equities markets around are the world are struggling and most funds are under performing. Likewise the low interest rate regime is likely to stay for many years hence impacting the performance of many pension funds globally, not limited to Malaysia. Fixed income investment instruments used to dish out high yields of 8% during the heydays in the 1990s but now yields on MGS and Treasuries have declined to less than 3.3% now - hence the term low interest rate regime thanks to the Financial Crisis of 2007/2008.

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