Malaysia’s new pension fund rule for foreign workers will boost EPF but is thin on details

By The Straits Times | Created at 2025-03-10 14:48:42 | Updated at 2025-03-10 18:51:22 4 hours ago

KUALA LUMPUR - Malaysia wants its 2.5 million foreign workers to contribute 2 per cent of their monthly salaries to the country’s pension scheme, known as the Employees Provident Fund (EPF). Employers will also have to contribute a matching 2 per cent of these workers’ monthly wages to the pension fund.

The new compulsory contributions, which are likely to be implemented in the fourth quarter of 2025, are expected to inject billions of ringgit into the EPF annually. Foreign or non-citizen workers will earn dividends from the contributions in their accounts, and can eventually withdraw their money when returning to their home countries for good.

Malaysia’s EPF, which is similar to Singapore’s Central Provident Fund, serves as a critical financial safety net, managing retirement savings for more than 16 million members. EPF contributions are a must for Malaysians and permanent residents working in the country. On March 1, the fund declared a 6.3 per cent dividend rate for both its conventional and syariah savings accounts for 2024.

On March 6, Parliament passed the Employees Provident Fund (Amendment) Bill 2025, which will make EPF contribution mandatory for foreign workers.

The proposed EPF contribution of 2 per cent of salaries from foreign workers as well as their employers is lower than the 11 per cent employee contribution and 12 to 13 per cent employer contribution required for Malaysian workers. Prior to this, foreign workers in Malaysia could contribute voluntarily to the EPF, with rates set at 11 per cent of their monthly salaries, with employers contributing RM5 (S$1.50) a month.

There is also an annual limit of RM100,000 on voluntary contributions to the EPF.

The main thrust of the change was to level the playing field and make it more attractive for employers to hire locals over foreigners, which would also reduce remittance outflows from Malaysia.

As of December 2024, only 22,635 or 0.9 per cent of the 2.5 million foreign workers in Malaysia have opted to actively contribute to the EPF, according to Finance Minister II Amir Hamzah Azizan.

Datuk Seri Amir said in Parliament on March 6 that making EPF contribution compulsory for foreign workers would create a more level playing field for Malaysian workers and encourage employers to hire more locals, thereby indirectly reducing reliance on foreign workers in the long run.

“If there is no EPF contribution for foreign workers, hiring them would be cheaper than employing local workers … that is why this effort is important to prevent the imbalance and encourage local employment,” he said.

“In addition, this measure can help the government reduce the number of undocumented foreign workers, as only those legally registered with employers are eligible to contribute to the EPF,” he added.

According to data from the Statistics Department in 2023, the median wage for a foreign worker was RM1,529 a month – just slightly above the minimum wage of RM1,500 at the time – while the median monthly wage for a Malaysian worker was RM2,602.

“The absence of EPF contributions for foreign workers makes the cost of hiring them lower compared to Malaysians,” Mr Amir noted.

Professor Emeritus Barjoyai Bardai at Universiti Tun Abdul Razak’s Graduate School of Business said that mandatory EPF contributions by non-citizen workers would help mitigate the impact of remittances sent by foreign workers back to their countries of origin.

“Most of the foreign workers send back all their money. The new policy would reduce the impact of cash outflow or funds outflow from Malaysia, and that may help our foreign exchange rate,” he told The Straits Times. In 2023, Malaysia recorded RM34.2 billion in official outward remittances from foreign workers.

Meanwhile, Datuk Dr Syed Hussain Syed Husman, president of the Malaysian Employers Federation (MEF), said that while mandatory EPF contributions for foreign workers will increase business costs, the amount is still “manageable”.

“MEF calls on the government to maintain the 2 per cent contribution rate for foreign workers without any increase in future... to ensure business sustainability,” he said.

Prime Minister Anwar Ibrahim, who had first proposed mandatory EPF contributions for foreign workers in the 2025 budget in November 2024, said in February that the rate would be kept at 2 per cent “for now”.

But the proposed EPF contribution for foreign workers has raised concerns among workers’ advocates regarding the amounts to be contributed, as well as the process for withdrawing funds.

While noting that EPF contributions will help improve migrant workers’ financial security by way of compulsory savings, some workers’ rights groups are wondering whether the 2 per cent rate for foreign workers and their employers will prove adequate.

Ms Glorene Das, executive director of Tenaganita, a women’s and labour rights organisation, said this was especially so since many foreign workers were only earning the current minimum wage of RM1,700 as domestic helpers and in sectors such as construction, manufacturing and plantations.

“While inclusion in the EPF is symbolically important, a more effective system should ensure that migrant workers have the ability to accumulate substantial savings, access their funds without excessive bureaucracy, and benefit from a more comprehensive social protection framework,” she told ST.

She said an alternative could be to raise wages instead of mandating EPF contributions, in order to give foreign workers more autonomy to make financial decisions.

However, she acknowledged that without mandatory savings measures, many of these workers would find it hard to put aside funds regularly for their future.

Both Ms Das and Dr Syed Hussain expressed concerns over the lack of clarity about the withdrawal mechanism and access to EPF funds for foreign workers.

Ms Das said that based on cases she managed in the past, the migrant workers were unable to withdraw their voluntary EPF contributions before returning to their home countries, citing systemic failures, such as bureaucracy and documentation issues.

She also suggested that Malaysia could look into creating portable social security agreements, similar to those in Europe, which would allow workers to retain or transfer their EPF contributions across borders.

“These schemes ensure that migrant workers do not lose their contributions when they leave,” she said, pointing to examples like the German-Turkish agreement that allows Turkish workers in Germany to transfer their social security contributions back to Turkey upon retirement.

Details about the withdrawal of EPF funds by foreign workers are still being ironed out, government officials told ST.

Filipino Neomie Ricafort, 48, who has worked as a domestic helper in Malaysia since 2011, said: “Contributing 2 per cent of my monthly income is OK, as long as I can take it back when I go home.”