Prepared by Hong Leong Assurance. I SUMMARY Social Security Eligibility All employees as of age 18. Retirement Age Contributions Retirement Disability 55M/F SOCSO (Social Security Act): employer 1.75% and employee 0.5% of covered earnings. EPF (Employee s Provident Fund): employer 13% (max.), employee 11% (max.) of employee s earnings. EPF contributions with interest. Temporary: 80% of average daily wages. Permanent: 90% of average daily wages. Permanent Partial: Proportionate to degree of disability. Death Medical benefits Survivors pension: 60% of the actual or potential disability person of the deceased person. Medical care in state appointed hospitals and clinics are available to all residents of Malaysia. Employee Reference Manual 2015-2016 - 1 - Swiss Life Network
Private Benefit Plans Eligibility All regular full-time employees under age 60. Retirement Age Contributions Retirement Disability Death Medical 55M/F Normally not contributory for the employee. Supplementary pensions are not popular as it is not perceived as an attraction for staff recruitment. If available, normally lump sum is paid. Usually lump sum. Varies between 36 and 60 monthly salaries. Personal accident cover is provided in most cases. Same benefit as above. Normally same as under disability. Provided for out-patient medical care including hospitalisation. Vesting Partial vested right to benefits only after five years of service, full vesting only after 15 years. Taxation Employer Contributions Social security: Deductible. Private benefit plan: Deductible if policy is purchased to cover the loss of profits resulting from disability or death of an employee. Employee Contributions Social security: Deductible. Private benefit plans: Normally non-contributory. Tax Approved Retirement Scheme. Social security: Not taxed. Private benefit plans: Normally taxed. Employee Reference Manual 2015-2016 - 2 - Swiss Life Network
II INTRODUCTION Country Statistics Population/ growth rate Age structure 0-14 years: 15-24 years: 25-54 years: 55-64 years: 65 years and over: GDP purchasing power parity/ Real growth rate Agriculture Industry Services Unemployment rate Inflation rate Annual gross salary* Semi-professionals Professionals Management Legal minimum wage Exchange rate on February 27, 2015 Currency: Malaysian Ringgit 30,073,353 (July 2014 est.) / 1.47% (2014 est.) 28.8% 16.9% 41.2% 7.6% 5.3% (2014 est.) USD 525 billion (2013 est.) 4.7% (2013 est.) 11.2% 40.6% 48.1% (2013 est.) 3.1% (2013 est.) 2.2% (2013 est.) in MYR General: 26,560 Skilled: 41,521 Junior: 64,910 Senior: 101,475 Lower: 158,636 Upper: 253,249 Monthly minimum wage for the private sector of MYR900 (for the peninsular states) and MYR 800 (for Sabah, Sarawak and Labuan) as per January 2013 1 MYR = 0.2764 USD 1 MYR = 0.2467 EUR *Source: Mercer s International Geographic Salary Differentials, Edition 2015 Legislation and Insurance Market Update in Brief The Financial Services Act 2013 and Islamic Financial Services Act 2013 are now in force. They consolidate and update governing insurance legislation and repeal the Insurance Act 1996 (Act 553) and Takaful Act 1984 (Act 312). Furthermore, The Personal Data Protection Act 2010 came into force after some delay. The Life Insurance Association of Malaysia (LIAM) is developing a standard Code of Practice for insurance company submissions to the government personal data protection (PDP) department. Employee Reference Manual 2015-2016 - 3 - Swiss Life Network
III SOCIAL SECURITY Background Information The insurance market in Malaysia is governed by the Financial Services Act 2013. The existing schemes in Malaysia may be classified into the following groups: Employees Provident Fund (EPF) Social Security Organisation (SOCSO) Work Compensation Insurance Since Dec 2012 the Private Retirement Scheme (PRS) has been introduced. Employees Provident Fund (EPF) The primary objective of the Employees Provident Fund Act is to provide old age benefits. It covers all employees with some exceptions. At the end of 2007 the Employees Provident Fund (EPF) introduced two new changes under its Beyond Savings initiative to help improve the employment prospects of members above the age of 55 and to enhance financial security of all members upon retirement. On February 1, 2008, the liability period for employers and employees to contribute to the EPF was extended from age 55 to age 75. In addition, members should have a minimum amount of basic savings at various age levels to help them accumulate savings of at least MYR 120,000 by the time they have reached age 55. For employees in the age group 55 and above, contributions are mandatory but the statutory contribution rates have been halved to promote employability for this group. Nevertheless, this group of members and their employers can choose to contribute more than the statutory rate if they so wish. The lower rates of contribution, however, do not apply to employees who are already above 55 and are currently working, and who have not made an Age 55 Withdrawal. These workers and their employers continue to make contributions at the existing rate (23%) until an Age 55 Withdrawal is made. Another key change under the Beyond Savings initiative is the implementation of basic savings which is the amount to be put aside progressively in Account 1 at various pre-determined age levels so as to enable members to accumulate a minimum savings of MYR 120,000 upon reaching age 55. In relation to this change, members are allowed to invest not more than 20% of savings in excess of the basic savings amount in Account 1 in products through approved investment institutions. Investment can be made once every three months at a minimum sum of MYR 1,000. Social Security Organisation (SOCSO) The Employees Social Security Act of 1969 covers organisations employing 5 or more persons who are earning MYR 2,000 or less per month. It is administered by SOCSO, a statutory body. Once a member, always a member. The program under this act covers the contingencies of employment injury and disability, including occupational diseases. Employee Reference Manual 2015-2016 - 4 - Swiss Life Network
Eligibility All employees can begin to participate in EPF or SOCSO at age 18. SOCSO All employees initially earning MYR 2,000 per month or below are required by law to be covered by Social Security and remain members throughout their working lifetime. Voluntary coverage is possible for persons earning over MYR 2,000 upon agreement between the employer and the employee. EPF Membership of the EPF is compulsory for all private sector employees and for non-pensionable public sector employees. Those who can opt to contribute are: self-employed domestic servants foreign employees pensionable public sector employees persons detained in any prison, place of detention, mental hospital, rehabilitation centre or leper settlement out-workers as defined in Section 3 of the Workmen's Compensation Act 1952. Workmen s Compensation Insurance All employees (not covered under SOCSO) whose earnings are less than MYR 500 per month, as well as all manual workers irrespective of their wages, are covered under the Workers Compensation Ordinance 1952. Contributions Contributions (EPF) Currently the total maximum contribution is 24% of salary (employer 13%, employee 11%). Employer contributions for permanent residents are as follows: Employees 55 years of age or older - 6% of wages (for contributors earning above MYR 5,000). Employees 55 years of age or older 6.5% of wages (for contributors earning less than MYR 5,000). Employees below 55 years of age - 12% of wages (for contributors earning above MYR 5,000). Employees below 55 years of age - 13% of wages (for contributors earning less than MYR 5,000). Employee contributions are as follows: Employees 55 years of age or older - 5.5% of wages Employees below 55 years of age - 11% of wages. Self-employed workers can contribute (irregularly) any amount between MYR 50 and MYR 5,000 per month. A 5% matching contribution from the government up to a maximum of MYR 60 per annum applies until December 31, 2014. Contributions (SOCSO) Contributions towards SOCSO are shared by employers and employees as follows: Employer: 1.75% of covered earnings Employee: 0.5% of covered earnings Employee Reference Manual 2015-2016 - 5 - Swiss Life Network
Retirement Retirement Age The normal retirement age is 55 for men and women. Effective from 1 July 2013, however, an employer may not retire an employee before 60 as mandated under the Minimum Retirement Age Act 2012. EPF members may retire before age 60 on a voluntary basis at the end of a service contract or collective agreement. Retirement may also be deferred to 75, with member contributions continuing at half the standard rate previously applying. Qualifying Conditions EPF contributions with interest may be withdrawn in the following cases: At age 55 Upon death or total and permanent disability Upon leaving Malaysia and Singapore permanently (EPF) Retirement benefits are provided only by the EPF. Effective January 1, 2007, the account is divided into parts, namely Account I and Account II. Employee contributions by the employer will be credited to the two accounts in the following ratio: Account I 70% of monthly contribution Account II 30% of monthly contribution Account I Contributions accumulated in this account may only be withdrawn for retirement purposes, normally at age 55, at which time the balance in Account I together with any balance in Account II may be withdrawn under one of the following conditions: as a lump sum as periodic payments by a combination of lump sum and periodic payments by withdrawing the yearly dividend If the insured has become incapacitated, left the country or died the payment will be made to the nominee / heir. Account II Savings in this account are meant to help the insured to prepare early for a comfortable retirement. Withdrawals are allowed under the following conditions: having attained the age of 50 home ownership: down payment for the insured s first house home ownership: settling the balance of insured s housing loan of first house financing education for insured and that of their children medical expenses for insured and that of their children Employee Reference Manual 2015-2016 - 6 - Swiss Life Network
Disability Qualifying Conditions SOCSO: A disability pension is paid to persons who have made at least 24 months of contributions in the last 40 months, or who have made contributions in at least two-thirds of the months since entry into insurance, with a minimum of 24 months. A reduced pension is paid to persons who have made contributions in only one-third of the months, but with at least 24 months in total. A member who is not eligible for a pension will receive an invalidity grant equal to the amount of contributions paid plus interest. EPF: a member who is permanently disabled can withdraw all of his/her EPF balance. The SOCSO invalidity pension scheme covers employees for non-work related permanent disability or death. The disability pension paid is equal to 50% to up to 65% of monthly average earnings, plus 1% for each 12 months of contributions over a period of 24 months. The maximum pension payable is equal to 65% of earnings, with a minimum pension of MYR 250 per month. If a reduced pension is paid, the maximum is 50% of the monthly average earnings, and the minimum is MYR 250 per month. A constant attendance supplement is also payable, and amounts to 40% of the pension, up to a maximum of MYR 500 per month. The EPF benefit is a lump sum payment equal to the total employee and employer contributions plus compound interest. An additional permanent disability benefit is a flat amount of MYR 5,000. Death Qualifying Conditions SOCSO: Death benefits are paid in the form of a survivor pension to the widow of the deceased member of the SOCSO s Invalidity Pension Scheme whose death occurred whilst in receipt of a disability pension or before the age of 55. EPF: Lump sum survivor benefits are paid to the nominated survivors or legal heirs of a deceased member of EPF. The SOCSO survivor pension amounts to 65% of the actual or potential disability pension of the deceased person. Each eligible orphan under the age of 21 receives benefits equal to 40% of the actual or potential disability pension of the deceased person. If there is no widow, then this amount is increased to 60% of the pension. The maximum total survivor pension must not exceed 100% of the actual or potential disability pension of the deceased person. A funeral grant of MYR 1,500 or actual cost of funeral whichever is lower is also payable. The EPF benefit is a lump sum amounting to the total employee and employer contributions plus compound interest. Additional death benefits amount to a flat rate of MYR 2,500. Employee Reference Manual 2015-2016 - 7 - Swiss Life Network
Sickness Qualifying Conditions Employees are entitled to paid sick leaves if certified by a recognised medical practitioner. The number of days granted depends on the length of service. Under the Employment Act, an employee is entitled to minimum paid sick leave (on full pay) of 14 days per year if service is less than two years, 18 days if service is between two and five years and 22 days thereafter. If the employee is hospitalised (or deemed ill enough to be hospitalised), he/she is entitled to a maximum of 60 days leave. Medical/Health Qualifying Conditions Medical benefits are available to all residents of Malaysia. Employees who meet with an accident or suffer from any occupational disease are entitled to free treatment at a SOCSO Panel Clinic or at any government hospital or clinic. In the event of a serious injury, the treatment should be at the nearest government hospital. The employee is eligible for second class ward treatment at the hospital if inpatient treatment is required. Specialist treatment, if required, will also be provided at a government hospital. Medical care in State appointed hospitals and clinics are available to residents at heavily subsidised rates or free of charge, with prescription charges being MYR 1 per prescription. However, as accommodation and medical services in such establishments are limited and costs in the growing number of private hospitals are substantial, it is common for larger and foreign employers to have a private medical plan for their employees. Work Injury Qualifying Conditions The SOCSO provides coverage to employees for work-related death and disability benefits. There are no minimum qualifying conditions for eligibility for such benefits. The following main benefits are payable under work injury: Temporary Disability: 80% of average daily wages. Minimum: MYR 10 per day. Maximum: MYR 78.67 per day. Permanent Total Disability: 90% of average daily wages. Minimum MYR 10 per day. Maximum: MYR 88.50 per day. Permanent and Partial Disability: Proportionate to the percentage loss of earning capacity. Dependants : Employee Reference Manual 2015-2016 - 8 - Swiss Life Network
Widow: 60% of daily rate of permanent total disability benefit of deceased person. Child: 40% of the daily rate of permanent total disability benefit for each child. If the total dependants benefit exceeds the daily rate of permanent total disability benefit, each dependant s share shall be proportionately reduced so as not to exceed 100% of the permanent total disability benefit. If there is no widow or the widow remarries or dies, each child is entitled to 60% of the daily rate. If there is more than one child, the amount payable shall be equally divided between them. Workmen s Compensation Insurance: The maximum benefits for death and total permanent disability are MYR 18,000 and MYR 20,000 respectively. Some benefits for other disabilities are also available. Unemployment There is no provision for entitlement to unemployment benefits. Other Maternity Every female employee is entitled to maternity leave and full pay for a period of at least 60 consecutive days, for up to five natural children. To be eligible for maternity benefits, she must be employed for a period of not less than 90 days during the nine months immediately preceding her confinement. Taxation Contributions are tax-deductible for the employer and the employee. from SOCSO and EPF are tax-free. Other Information Reciprocal Social Security Agreements None known. Employee Reference Manual 2015-2016 - 9 - Swiss Life Network
IV PRIVATE BENEFIT PLANS Background Information The usual group insurance provided to employees is a combination of group term life and group hospital and surgical, or group personal accident and group hospital and surgical. End of 2012 Malaysia implemented the voluntary Private Retirement Scheme (PRS), a defined contribution retirement savings program open to all Malaysian residents aged 18 or older. Eligibility A typical group benefit program in Malaysia covers all regular, full-time and permanent employees under age 60. Contributions Contributions are usually paid by the employer. Retirement Retirement Age Normal retirement: Early retirement: Late retirement: 55M/F 50M/45F 60M/F Similarly to the EPF, contributions in the PRS are split into two types of sub-accounts (they are lumped together for investment purposes but the separation is to identify the withdrawal status), 70% in Sub-Account A and 30% in Sub- Account B. The entire fund in the PRS can be withdrawn upon reaching retirement age, death or emigration. Partial withdrawal for pre-retirement (prior to reaching 55 years of age) is allowed as well, but this can be only from Sub-Account B once a year and will incur an 8% tax penalty on the withdrawal amount.. Contribution Both employees and employers are permitted to contribute to the PRS and there are no specific requirements for contribution amounts or intervals at which they are made. Death and Disability Group Term Life The sum assured varies from 24 to 60 times monthly salary, although 36 times seem to be commonly popular. Death and total permanent disability are covered. Employee Reference Manual 2015-2016 - 10 - Swiss Life Network
Group Personal Accident Compensation is provided in the event of injury/disability due to accident as a rider to Group Life insurance. Sum assured ranges from 24 to 60 times monthly salary, although 36 times seem to be commonly popular. Medical/Health Private medical plans usually cover clinical and hospitalised medical care and prescription charges. Maternity and dental benefits are not common. It is usual to extend medical benefits to dependants, but the employee pays one-half of the costs for this. Employees are generally covered free of charge. It is common practice to provide different levels of benefits to different categories of employees. Other None. Taxation Contributions and Employer contributions to SOCSO are tax deductible and are not considered to be taxable income to the employee. The benefit on disability is tax-free. In addition to the 12% employer contribution to the EPF, the employer may pay another 7% of salary. That part is also tax deductible and is not considered taxable income to the employee. If the policy is taken out by the employer to cover loss of profits due to the death or total and permanent disability of an employee, the premiums are tax-deductible, but the benefit becomes taxable. However, if the employer decides to pay an amount out of their own funds to the family on an employee s death as a gratuity, this gratuity amount is taxdeductible. Employee contributions to SOCSO are tax deductible. EPF contributions are tax deductible up to MYR 5,000. All businesses located outside the Free Trade Zone are subject to a 5% Service Tax on all insurance premiums paid by the companies. As a rule, SOCSO and EPF benefits are tax-free. Private Retirement Schemes are tax-free and tax deductible provided the plan is approved; otherwise, the benefit becomes taxable. In order to encourage take-up of the new voluntary retirement plan, the Private Retirement Scheme (PRS), the government has introduced several tax incentives: Annual tax deductions for employee contributions of up to MYR 3,000 Tax deductions on employer contributions of up to 19% of employees' pay (including EPF contributions) Employer contributions are not taxable to employees (same treatment as EPF contributions) PRS fund investment income is tax free Retirement benefits paid out under the scheme are not taxable income for employees Employee Reference Manual 2015-2016 - 11 - Swiss Life Network
Double Taxation Agreements Albania, Australia, Austria, Bahrain, Bangladesh, Belgium, Bosnia and Herzegovina, Brunei Darussalam, Canada, Chile, China, Croatia, the Czech Republic, Denmark, Egypt, Fiji, Finland, France, Germany, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Italy, Japan, Jordan, Kazakhstan, Korea (Republic), Kuwait, Kyrgyzstan, Laos, Lebanon, Luxembourg, Malta, Mauritius, Mongolia, Morocco, Myanmar, Namibia, the Netherlands, New Zealand, Norway, Pakistan, Papua New Guinea, the Philippines, Poland, Qatar, Romania, Russia, San Marino, Saudi Arabia, Senegal, the Seychelles, Singapore, South Africa, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Thailand, Turkey, Turkmenistan, the United Arab Emirates, the United Kingdom, Uzbekistan, Venezuela, Vietnam and Zimbabwe. Employee Reference Manual 2015-2016 - 12 - Swiss Life Network