Housewives can save too

The 1Malaysia Retirement Savings Scheme, a government initiative that allows those without fixed income to contribute towards their retirement fund, is now open to housewives as well.

Under the scheme, which was launched by the Employees Provident Fund (EPF) in January, members will receive annual dividends and the government will also contribute an additional 5% to a member’s contribution from 2010 to 2014, subject to a maximum of RM60 per year. Members can make contributions of RM50 to RM5,000 anytime they want, unlike under the conventional EPF scheme, where members have to contribute each month.

Should housewives contribute? Financial planners say it’s a good option for those who have limited funds and do not have many investment options. Sean Lee, Group CEO of Ausscar Group Sdn Bhd, calls the scheme “a combination of a normal savings account and a fixed-deposit account”, suitable for those with a conservative risk profile. “The EPF is something like a low-risk capital protected fund. It guarantees a minimum of 2.5% dividend annually,” Lee says, adding that the EPF’s higher returns also makes it a better alternative to savings and fixed-deposit accounts (the latter pays a maximum of 3% per year for a year’s tenure currently).

James Cheong, senior partner at IPP Wealth Planners Sdn Bhd, says: “This scheme is good for people in the lower-income group; whose income is uncertain and they can only contribute RM50 to RM100 a month. The return would mean a lot to them.”

Assuming that one contributes RM50 a month or RM600 a year, based on a 5% annual dividend yield declared by the EPF, the return would be RM30 for the year. There is an additional RM30 when topped up with the government’s 5% contribution over the five-year period. Total gains would amount to RM60 a year. In contrast, if one contributes RM1,000 a month or RM12,000 a year, the return would be RM660 (RM12,000 x 5% + RM60 from the government), or 5.5% a year.

The scheme will also suit those who lack financial discipline and investment knowledge, says Chong Sui Wei, a licensed financial planner with Wealth Concepts Consultancy. “Some who have been contributing to unit trusts and insurance savings scheme would eventually see their contribution lapsing or being withdrawn because they just can’t be disciplined in contributing regularly,” she says. “By putting their money in the EPF, it won’t be so easy for them to withdraw the money that they’ve already put in.”

Under this scheme, members can only withdraw their savings according to the present EPF withdrawal procedures and conditions. This includes withdrawing your savings from Account 2 to partially finance your purchase of a house, paying for medical expenses, financing your education or that of your children.


This article appeared in The Edge Financial Daily, July 27, 2010.