Friday, November 7, 2008

To Cut Or Not To Cut?

EPF is hogging the headlines again. After the Valuecap fund injection (my articles dated 28 & 30 Oct), EPF is doing another round of national service. Reduction of the employees’ contribution from 11% to 8% would be made automatically for the ease of members effective January 2009 until December 2010. Those who wish to maintain their 11% rate must fill up Form KWSP 17A (AHL) and hand it to their employers for submission to EPF.

What is the rational for this move? Our left pocket to our right pocket? Or our pockets to their pockets? The Government has estimated that RM4.8bil a year will be freed up for spending in the economy if all EPF contributors opt for the rate cut. The idea is to boost private consumption by putting more money in workers’ pockets.
It is a very optimistic estimate. Personally I believe that the majority will stick to the status quo. Tell me, to cut or not to cut?

To cut and have more disposable income. Assuming you earn RM5,000 a month. 3% cut will put additional RM150 in your pocket. What happen next? Within days, without the financial discipline, the RM150 will end up in someone else pockets! Your retirement nest is the loser here!

Not to cut, status quo and have more retirement money. Trust EPF to declare 5% dividend x RM150 = RM7.5. Satisfied with the return?

Alternatively, let me spin it differently. Cut. Take the money. Instead of spending it away why not put it to good use. Invest. Grow the money. RM150 probably could not buy us a good share but it could be invested into other investment products like unit trust fund. Explore the benefits and check out the market risk. The present condition has made this investment very attractive and affordable. It is up to us what we want to do with the extra cash. Let us make it a left pocket to right pocket transaction and not our pockets to their pockets deal!


Ahmad Ikmal said...

Personally, I feel it was a good move to reduce the EPF contribution by the employee. It mgiht seem little but it goes a lnog way towards helping those in real need. I would however agree with you bro, that one should take the money and invest in unit trust funds and so on to make the money grow, if it is possible.

The main idea of reducing EPF contribution is to give some (albeit small) financial flexibility to the contributors in these difficult times. Now, we have to ensure we use this extra money responsibly and according to needs, instead of blowing it by buying more cigarettes and so on.

CheeWee said...

yeah, the worrying part is when the contributors use the $$$ to light up at the expense of their old age needs.