For civil servants only: which is the better option: pension or EPF schemes?
April 28th, 2007This info is not formally told to anybody at any stage when they become civil servants, at least for the Sabah civil service. Please add/correct where necessary. Thanks.
Pension scheme
Advantages:
- Will still be eligible for free treatment at government hospitals after retirement. This is an especially pertinent point since most medical expenses will come up as you one gets older.
- Take-home pay bigger than EPF because no EPF deduction.
- Some kind of spending control exists, because you still get monthly payments instead of one lump sum when you retire. I read somewhere that most people would use up all their EPF savings within 3 years of retiring.
Disadvantages:
- Upon retirement, one would get an amount much less than EPF, possibly by a factor of 3 or even more, even after including gratuity.
EPF scheme
Advantage:
- Upon retirement, one would get an amount much bigger than pension scheme.
Disadvantage:
- No more free medical treatment at govt hospitals after retirement. With medical costs and health insurance premiums spiralling upwards, this is a major concern.
- No spending control built-in like the one in pension scheme. You’d get everything in one lump sum when you retire. It’s possible that this could be a seven figure amount. Of course you can opt for an annuity type payout, but you’d have to opt – it’s not automatic.
- Take home pay less by a few hundred RM because of EPF deduction.
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not employed here but just want to speak some. well i think EPF is better, mainly because of the large sum of money we get. EPF takers can simply bank in their money and keep it there.
as for pension… when you retire, that time you’re old for sure. so better get the money while we still can. if the husband dies then the wife can have the pension. but how if both died? does the money go to any relatives? i’m not sure but i don’t think so. correct me if i’m wrong.
Better check the circulars issued by JPA. Usually state will also follow what federal said.
QUOTE: if the husband dies then the wife can have the pension. but how if both died?
I thought it was mentioned somewhere that in a pension scheme, the last surviving child will continue to receive the benefits until the child reaches 21 yrs old, no?
True. The pension will be given (divided) to all children under 21 years old as if the parents are still alive.
Perhaps you can get all the answers at JPA’s pencen website: http://www.jpapencen.gov.my
According to its FAQ at http://www.jpapencen.gov.my/faq_answer.html#4:
Soalan: Siapakah yang layak dibayar pencen apabila pesara meninggal dunia? Jawapan: Tanggungan pesara yang layak dibayar pencen terbitan ialah – balu atau balu-balu atau duda (bagi duda, isterinya hendaklah masih berkhidmat pada atau selepas 1.7.1980); anak di bawah umur 21 tahun dan belum berkahwin. Takrif anak: termasuk anak angkat, anak tiri dan anak tak sah taraf. Bagi anak cacat yang cacat otak atau hilang upaya dari segi jasmani secara kekal dan tidak berupaya menanggung dirinya sendiri, tiada had umur ditetapkan. Anak yang sedang menuntut di institusi pengajian tinggi layak diteruskan bayaran pencen terbitan melampaui umur 21 tahun sehingga tamat pengajian di peringkat ijazah pertama. Kadar bayaran: Balu/Balu-balu/Duda: 2 syer bagi tiap-tiap seorang balu/duda & Anak:1 syer bagi tiap-tiap seorang anak.
I did not dig further what is meant by a “syer” or what happens if both husband and wife dies – all shares go to anak? What if, touch-wood, the whole family dies in some tragic accident?
I am assuming that tatacara pencen for sabah state civil service and the federal civil service are same.
Pencen is better than lump sum scheme… pencen is given to the wife and last son/daugther after the husband dead but the lump sum scheme were being paid for one time only… that is the thruth. tq
But, in the end, even though the lump sum scheme (EPF) is being paid one time only, won’t the total amount will still be greater than what the family will get if the husband opted for the pension scheme? The lump sum could be very well be a seven figure (RM) amount.
I am assuming:
- husband’s monthly EPF deduction is more than RM750.
- husband will be well and working until retirement (56).
- Part of EPF money while husband is still working is invested in private unit trusts (not ASB, but rather things like Public Mutual, where dividends should be more than 20% per yr); and when he retires, a certain amount will be taken out for a year’s living expenses while the rest invested in various investment instruments including unit trusts.
On the matter of who will get the pension when both parents die, it will be the children under 21 shared equally between them, through their legal custodian (must have court letter to state the custodian, that’s what a legal custodian mean).
This is what has been told to my mom when my dad passed away long ago.
Whether pension or EPF is better, I think for my mom it is pension, because of the health benefit she gets as a spouse. She continues to get 1st class medical treatment at the GH due to my dad’s position in the govt formerly. The monthly pay definitely wasn’t enough to pay for the five of us bros and sisters, but luckily a few of us were smart enough in school to earn scholarships :)
In a nutshell, long term for our elderly parents will be good if using pension, but if you’re expecting to travel around the world with that, I suggest some extra savings somewhere be made.
The medical factor is probably the biggest advantage of pension scheme over EPF due to rising medical costs and the fact that most, if not all, medical cards expire at age 65. But I need to check out the GE one – seems age extended until 100? Myself and wife both work in the civil service, one of us went for EPF and the other one pension – so I guess that kind of evened it out. There’s a revised pension scheme intro by JPA coming up with Cuepacs against it. I suppose that’s another opportunity of changing your mind in case you regretted your previous decision.
For long term financial security…pension is better unless you are very good in managing personal finance then EPF is the way to go. Best if both husband and wife are working for the gov’t…the husband go for pension and wife opt for epf….best of two worlds. Another method is go for pension…if you are bumi…invest in ASB. Some banks offer ASB loan…pay monthly for first 3 years then let the subsequent yearly dividend+bonus pay for the annual loan amount. If you have 20 years to retirement…take 20-year term. Preferably RM100K investment and above. By that time you will earn a big amount.
Just my opinion.
EPF – allows the flexibility of leaving govt service for other opportunities
Pension – tied to govt until retirement