Malaysia has passed the Employees Provident Fund (Amendment) Bill 2025, making retirement savings contributions compulsory for non-citizen workers.

The scheme is designed to level the playing field between local and foreign employees, reduce reliance on migrant labour, and inject billions of ringgit into the country’s pension scheme.

The amendment, passed last week after a heated parliamentary debate, mandates that foreign workers and their employers each contribute 2% of monthly wages to the EPF. While this is significantly lower than the 11% employee and 12-13% employer contribution rates required for Malaysian workers, it represents a paradigm shift in the treatment of non-citizen labour.

Finance Minister II Datuk Seri Amir Hamzah Azizan defended the decision, arguing that the policy would boost household spending power, stimulate economic growth, and prevent an overreliance on foreign labour.

Citing a paper by Bank Negara Malaysia, he highlighted how high dependence on migrant workers correlates with lower productivity and stagnant wage growth.

“If there are no EPF contributions for non-citizen workers, hiring them would be cheaper than employing locals … that is why this effort is important to prevent the imbalance and encourage local employment,” Amir Hamzah told Parliament.

The impact of the EPF requirement on foreign workers

For years, foreign workers in Malaysia had the option to voluntarily contribute to the EPF, with employee deductions set at 11% of wages, while employer contributions were a token RM5 per month. As of December 2024, only 22,635 foreign workers – a mere 0.9% of the 2.5 million-strong migrant workforce – had opted into the scheme.

The discrepancy in contribution structures created a cost advantage for hiring foreign workers over locals. By mandating EPF contributions, the government aims to close this gap.

Moreover, the requirement that only legally employed foreign workers can contribute to the EPF is expected to curb undocumented labour, strengthening compliance and streamlining workforce regulation.

Beyond labour market considerations, the policy also has macroeconomic implications. Malaysia recorded RM34.2 billion in outward remittances from foreign workers in 2023, a substantial outflow that impacts foreign exchange reserves.

In ensuring that a portion of foreign workers’ earnings remains in the local economy, Malaysia could see a cushioning effect on the ringgit while also fortifying its social protection framework.

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Concerns over adequacy and accessibility

While the government argues that EPF contributions will improve financial security for foreign workers, concerns remain over the effectiveness of the 2% contribution rate and the ease of fund withdrawals.

Glorene Das, executive director of Tenaganita, a labour rights organisation, noted that many migrant workers earn just above minimum wage, with median earnings at RM1,529 compared to RM2,602 for Malaysians. She questioned whether a 2% EPF contribution would be meaningful in ensuring long-term financial security.

“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 The Straits Times.

Das also suggested that raising wages – rather than mandating small contributions – might be a more empowering approach to give workers greater autonomy over their finances.

The business community has responded with measured concern, acknowledging the increased costs but deeming them manageable.

Datuk Syed Hussain Syed Husman, president of the Malaysian Employers Federation, urged the government to keep the 2% rate fixed to avoid adding further financial strain on businesses.

Labour rights groups have also highlighted the need for portable social security agreements, similar to those in Europe, which allow migrant workers to retain or transfer their pension contributions across borders.

While the Malaysian government has yet to finalise withdrawal procedures for foreign workers, officials have indicated that details will be ironed out in due course.

With the policy set to take effect in Q4 2025, its success will ultimately hinge on implementation efficiency, withdrawal transparency, and whether it achieves its dual objectives of strengthening social security and recalibrating the labour market.

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EPF: A step towards labour market balance?

The mandatory EPF contributions for foreign workers represent a watershed moment in Malaysia’s labour policy, aiming to strike a delicate balance between economic competitiveness, social protection, and financial stability.

While businesses brace for higher costs and workers’ advocates push for greater financial autonomy, stakeholders must watch over the long-term effects of the policy on employment trends, remittance flows, and social security coverage.

For now, Malaysia is setting a precedent in redefining labour economics and ensuring that its migrant workforce plays a more structured role in the country’s financial ecosystem.