Recently, our Finance Minister announces that the EPF (Employee Pension Fund) is reduced from 11% to 8%, so that the people have more money every month, and increase the purchasing power. I believe the aim of this new policy is to increase the purchasing power and boost the economy. The question is, can this move really improve the purchasing power, and boost the economy?
Reduction from 11% to 8% means that we have extra 3% of our salary every month. 3% is not a huge amount, but also help a bit to ease our burden in this high inflation era. This is the direct benefit that we can see, but did we think in depth, what is the implication of this move? Is this really benefit to people like us?
EPF is our pension fund, and this will be the main income when we are retired. In fact, EPF is already not sufficient for our retirement fund. When we pay less 3% every month now, this means that our retirement fund in future will be lesser. Do not think that this 3% is just little. When we consider the compounding effect of the EPF dividend, this may make you lose quite a lot in future. Even RM100, after 30 years with dividend 5% per year (conservative assumption), this RM100 will become RM432, which is 4.32 times. This is the first thing we should consider.
Another more important aspect is the tax. Maybe most of us did not aware about the tax when we heard about this reduction in EPF. EPF is tax-deductible. We can minus out the EPF amount that we paid when we calculate for our taxable income. Now, we pay less to EPF, so that the deductible amount is also less. If your monthly income is in the range of RM2400 to RM6300, this reduction of EPF may increase your tax payable. People with income less than RM2400 a month, normally is not taxed. People with higher income than RM6300, their tax-deductible amount is already maximum. (EPF tax-deductible amount is RM6000 maximum)
Maybe you will think that 3% is not much, even you are taxed more, but the amount is still a small amount. In fact, you may get wrong. So, please check about your income if your salary range is between RM2400 and RM6300. In tax, there is a tax rebate RM400 for those who have taxable income less than RM35,000. If your taxable is just exceeded this RM35,000, because of the reduction of EPF, then you will need to pay RM400 more to Income Tax. Check back your last year BE Form, if your taxable income is around RM30,000, then you must be careful. With the increment of salary this year and next year, your taxable income may be closed to the RM35,000. If you choose to pay less to EPF, your taxable income may exceed RM35,000 and you will be taxed RM400 more. The reduction is automatic, so you should consider properly and apply to remain the same 11% deduction if you think you need to.
Reduction from 11% to 8% means that we have extra 3% of our salary every month. 3% is not a huge amount, but also help a bit to ease our burden in this high inflation era. This is the direct benefit that we can see, but did we think in depth, what is the implication of this move? Is this really benefit to people like us?
EPF is our pension fund, and this will be the main income when we are retired. In fact, EPF is already not sufficient for our retirement fund. When we pay less 3% every month now, this means that our retirement fund in future will be lesser. Do not think that this 3% is just little. When we consider the compounding effect of the EPF dividend, this may make you lose quite a lot in future. Even RM100, after 30 years with dividend 5% per year (conservative assumption), this RM100 will become RM432, which is 4.32 times. This is the first thing we should consider.
Another more important aspect is the tax. Maybe most of us did not aware about the tax when we heard about this reduction in EPF. EPF is tax-deductible. We can minus out the EPF amount that we paid when we calculate for our taxable income. Now, we pay less to EPF, so that the deductible amount is also less. If your monthly income is in the range of RM2400 to RM6300, this reduction of EPF may increase your tax payable. People with income less than RM2400 a month, normally is not taxed. People with higher income than RM6300, their tax-deductible amount is already maximum. (EPF tax-deductible amount is RM6000 maximum)
Maybe you will think that 3% is not much, even you are taxed more, but the amount is still a small amount. In fact, you may get wrong. So, please check about your income if your salary range is between RM2400 and RM6300. In tax, there is a tax rebate RM400 for those who have taxable income less than RM35,000. If your taxable is just exceeded this RM35,000, because of the reduction of EPF, then you will need to pay RM400 more to Income Tax. Check back your last year BE Form, if your taxable income is around RM30,000, then you must be careful. With the increment of salary this year and next year, your taxable income may be closed to the RM35,000. If you choose to pay less to EPF, your taxable income may exceed RM35,000 and you will be taxed RM400 more. The reduction is automatic, so you should consider properly and apply to remain the same 11% deduction if you think you need to.
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