This because under the EPF Act 1991, such a two per cent cut can only be optional and cannot be made compulsory.
Mahathir said the government is prepared to review the proposed two per cent cut in employees' contributions to the EPF if many contributors are against it, but in the meantime, reduction from 11 per cent to nine per cent will take effect from April 1. He said the EPF cut in contribution is compulsory because it is hard to make it voluntary.
Mahathir’s statement about reviewing the two per cent EPF cut if the people are against it is as meaningless as the statement by the Finance Minister, Tun Daim Zainuddin in Parliament that the government is prepared to sell back to Tajudin Ramli his 29.09 per cent stake in MAS for RM1.79 billion or at RM8 per share if the people are not happy with the government purchase of the MAS shares from Tajudin - just excuses with no action intended.
Mahathir is however both wrong in law and in practice when he said that the 2% cut in EPF contribution for employees is compulsory under the law and that it is hard to make it voluntary as the EPF Act 1991 specifically provides for different rates of contributions by employees at their own option.
The relevant sub-sections of Section 43 of the EPF Act 1991 states:
“43 (1) Subject to the provisions of section 52, every employee and every employer of a person who is an employee within the meaning of this Act shall be liable to pay monthly contributions at the rate respectively set out in the Third Schedule.
“(3) Without prejudice to the provisions of sub-section (1), an employer and an employee or either of them may, at any time elect to pay monthly contributions at a rate which exceeds the rate respectively set out in the Third Schedule by one ringgit or a multiple of one ringgit.
“(4) Notice of such election shall be given to the Board in such manner and form as may be prescribed by the Board and where any such notice has been given, this Act shall, in respect of any employer or employee who has elected as aforesaid, apply as if the rate of contribution which such employer or employee has elected to pay, were the rate respectively set out in the Third Schedule:
Provided that an election cannot be made to take effect retrospectively.”
It is very clear that under the EPF Act, employees can elect to reject the 2% EPF cut proposal and continue to contribute 11%, which will be recognised by EPF as the statutory rate of contribution for this category of workers.
Nobody would fault Mahathir for not knowing the detailed provisions of the EPF Act, but it is clearly a serious government lapse that the Prime Minister could be so badly advised as to make an erroneous statement on the legal position of the two per cent cut of EPF contributions for employees for one year - a most disturbing sign of the alarming fall of the standards of governance in his 20th year as Prime Minister.
The EPF should follow the law to accept higher EPF contribution rates and simplify the whole process of the notification of an employee’s election to continue to contribute 11% instead of the reduced mandatory minimum rate of 9% by accepting continued payment at 11% as notice of such election. This will circumvent all the bureaucratic red tape and unnecessary paper work of every EPF contributor having to give separate notice to elect to continue to contribute at 11% rate.
The two per cent cut in employees’ EPF contributions has not been well-received by trade unions and workers as it could adversely affect the workers’ savings for old age . Furthermore, the two per cent reduction does not come to very much as it would mean RM20 to RM40 more at their disposal for those earning between RM1,000 to RM2,000.
Instead of a two per cent cut in employees’ contribution to EPF, it would be better for the authorities to allow workers to withdraw more from their account II (housing account in the EPF) to enable them to own houses as a form of investment.
The Mahathir bungle in confusing the reduction of the mandatory minimum rate of employees’ contribution from 11% to 9% with a mandatory two per cent EPF cut raises anew concerns among the 9.7 million EPF contributors about the professionalism, competence and integrity of the EPF management and the security, liquidity and yield in the investments of the EPF funds which will top RM200 billion by the end of the year.
Such concerns are particularly acute close on the heels of the public uproar over the misapplication of EPF funds when the EPF was forced admit that it had invested RM269.28 million to subscribe to 81.6 millon Time dotCom shares at the IPO price of RM3.30, incurring a loss of RM100 million when the counter fell 37% of its IPO price to RM2.08 when trading ended yesterday.
The 9.7 million EPF contributors are not mollified or relieved that the losses suffered by EPF are not as huge as the Pensions Trust Fund (KWAP), which incurred a colossal loss of RM334.3 million for committing RM903.74 million from the KWAP to take up 273.86 million Time dotCom shares or the bulk of the unsubscribed portion of its IPO.
The EPF Board should give serious and urgent consideration to the DAP proposal that the EPF formulate and proclaim a new policy of accountability and transparency as the first important step to restore public confidence in the professionalism, competence and integrity of the EPF in the management of the RM200 billion EPF funds.