I THINK IT’S safe to say 2020 wasn’t a particularly great year for most people and I’m not going to say any more on it than necessary. Lives were lost, freedoms were lost, jobs were lost. But this will pass, and normality will resume (at some point).
Losing a job, or not having a contract renewed when it was expected to be, is a stressful experience for anyone and I’m sure we all know someone who’s had to move on in search of work, or repatriate to their home country, over the last 12 months. Anecdotal evidence suggests many more expats are leaving Malaysia than are arriving.
A question that some of my clients have been asking me ahead of moving on is what to do with their EPF proceeds. The Employees Provident Fund (EPF) is a government pension scheme compulsory for Malaysians, but also offered to many expats.
The great news is that EPF is paid out, tax free, upon leaving Malaysia. In many cases, the EPF has accumulated into a substantial amount of money, but it is important to remember that this is a vital element of your pension planning and not a windfall. Too often, I’ve heard of people leaving Malaysia and blowing their EPF in the first few years, leaving them with little to show for their time working here.
Of course, you don’t have to encash your EPF account; you can simply leave your accumulated savings invested, but it is likely to be easier to complete the closure formalities whilst you are still in the country. It is also worth considering that the EPF is a ‘one size fits all’ investment and you have no control over the strategy or risk profile.
Furthermore, whilst historic returns have been attractive, if the ringgit falls in value vs your home country’s currency, then these gains can be quickly wiped out by losses in the exchange rate. Between 2010 and 2014, the ringgit was in a trading range of between 2.9 to 3.3 to the US dollar, whereas the last six years it has bounced between 3.9 and 4.5, a loss which most likely would have wiped out all gains if proceeds were paid out in USD.
In order to protect against future weakness in the ringgit, and to ensure your investment strategy is aligned with your risk tolerance, we typically advise expats to cash out their EPF accounts when leaving Malaysia and to reinvest the proceeds in a suitable retirement savings plan to ensure there is no gap or shortfall in their pension provisions. This also means that your money will be invested on a global basis with greater transparency enabling you to see the underlying funds and assets allocations.
We also typically recommend expats to arrange this transfer before they leave as this could be tax advantageous, and it won’t be an extra task to burden them when they are busy settling in back home, or in a new country, facing the challenges of a new job and finding housing, schools, etc.
One often overlooked facility with the EPF is that you can access any excess in your account over RM1 million at any point without having to leave the country. I have some clients who continue to receive valuable EPF contributions from their employer, but they simply withdraw the excess regularly and reinvest it into something they have control over in a hard currency.
In conclusion, my advice is not to wait until you have left the country before planning what to do with your EPF proceeds. You should be taking advice and setting up suitable accounts to transfer your balance to as soon as you know you are leaving, and if your EPF balance is over RM1 million perhaps you may wish to diversify some of that currency risk sooner.
Jamie is a Chartered Financial Planner and strives to raise the standards of international financial planning in Malaysia and Asia. You may direct any inquiries to [email protected] or call +6014.734 6689.
This article was first published in The Expat (March 2021 edition). For more content, please subscribe here.
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