Malaysia is set to introduce mandatory pension contributions for its 2.5 million foreign workers, a policy shift aimed at levelling the playing field between local and migrant labour while curbing reliance on overseas workers. Starting likely in the fourth quarter of 2025, foreign workers and their employers will each contribute 2 per cent of monthly wages to the Employees Provident Fund (EPF), Malaysia’s national retirement savings scheme. While the government touts the move as a step toward fairness and financial security for migrants, concerns linger over its practicality, adequacy, and impact on an already vulnerable workforce.

The policy, formalised through the Employees Provident Fund (Amendment) Bill passed on 6 March 2025, marks a significant departure from the previous voluntary contribution system, under which fewer than 1 per cent of foreign workers participated. With the new mandate, the government hopes to inject billions of ringgit annually into the EPF, reduce remittance outflows, and encourage employers to hire more Malaysians by narrowing the cost disparity between local and foreign labour. But as details remain unclear—particularly around withdrawal mechanisms—workers’ rights advocates warn that the scheme may burden low-wage migrants without delivering meaningful benefits.

A Push for Parity in the Labour Market

Malaysia’s economy heavily relies on foreign workers, who number 2.5 million and are primarily employed in low-wage sectors such as construction, manufacturing, plantations, and domestic work. Historically, the absence of mandatory EPF contributions has made hiring foreign workers cheaper than employing locals, for whom employers must contribute between 12 and 13 per cent of wages, alongside an 11 per cent deduction from employees. “If there is no EPF contribution for foreign workers, hiring them would be cheaper than employing local workers,” Finance Minister II Datuk Seri Amir Hamzah Azizan told Parliament on 6 March. “That is why this effort is important, to prevent the imbalance and encourage local employment.”

The new 2 per cent contribution rate—applied equally to foreign workers and their employers—is significantly lower than that for Malaysian workers, reflecting a cautious approach to balancing business costs with policy goals. Prime Minister Anwar Ibrahim, who first proposed the measure in the 2025 budget in November 2024, confirmed in February that the rate would remain at 2 per cent “for now.” The government also sees the policy as a tool to tackle undocumented migration, as only legally registered workers will be eligible to contribute, potentially incentivising formal employment.

Beyond labour market dynamics, the policy aims to address Malaysia’s economic challenges. In 2023, outward remittances by foreign workers totalled RM34.2 billion, a significant drain on foreign exchange reserves. Professor Emeritus Barjoyai Bardai of Universiti Tun Abdul Razak’s Graduate School of Business told local media that mandatory contributions could mitigate this outflow. “Most foreign workers send back all their money,” he noted. “The new policy would reduce the impact of cash outflow or funds outflow from Malaysia, and that may help our foreign exchange rate.”

Financial Security or Added Strain?

For foreign workers, the promise of financial security through EPF contributions is tempered by practical concerns. Many earn close to the minimum wage—recently raised to RM1,700 monthly—leaving little room for additional deductions. While workers will earn dividends on their contributions (the EPF declared a 6.3 per cent rate for 2024) and can withdraw funds upon permanent return to their home countries, the 2 per cent rate may yield negligible savings. For a worker earning RM1,700, the monthly contribution amounts to just RM34, a sum critics argue is insufficient for meaningful retirement planning.

Workers’ rights advocates have welcomed the symbolic inclusion of migrants in the EPF but question its effectiveness. Glorene Das, executive director of Tenaganita, a labour rights organisation, highlighted the challenges faced by low-wage workers. “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 said. Das suggested raising wages as an alternative, giving workers greater autonomy over their finances, though she acknowledged that without mandatory savings, many would struggle to set aside funds.

Individual voices echo these concerns. Neomie Ricafort, a 48-year-old Filipina domestic helper who has worked in Malaysia since 2011, expressed cautious acceptance. “Contributing 2 per cent of my monthly income is OK, as long as I can take it back when I go home,” she said. Her comment underscores a critical uncertainty: the mechanism for withdrawing funds remains undefined, with government officials admitting that details are still being finalised.

Bureaucratic Hurdles and Lessons from Abroad

Past experiences with voluntary EPF contributions cast a shadow over the new policy. Advocates like Das point to systemic failures, including bureaucratic obstacles and documentation issues, that have prevented returning migrants from accessing their savings. “Based on cases I have managed, migrant workers were unable to withdraw their voluntary EPF contributions before returning to their home countries,” she explained. Without clear, accessible processes, the mandatory scheme risks becoming a source of frustration rather than security.

Das advocates for portable social security agreements, akin to those in Europe, which allow workers to transfer contributions across borders. She cited the German-Turkish agreement, under which Turkish workers in Germany can retain or transfer social security benefits upon retirement. Such a model, if adapted to Malaysia’s context, could ensure that foreign workers do not lose their hard-earned savings when they leave—a concern particularly acute for those from neighbouring countries like Indonesia, Bangladesh, and Nepal, who form a significant portion of the workforce.

Employer Perspectives and Economic Impacts

Employers, too, are grappling with the implications of the new mandate. While the 2 per cent contribution rate is modest compared to obligations for local workers, it still represents an added cost. Datuk Syed Hussain Syed Husman, president of the Malaysian Employers Federation (MEF), described the increase as “manageable” but urged the government to maintain the rate without future hikes to ensure business sustainability. His call reflects broader anxieties among employers, particularly in labour-intensive industries, about rising operational costs in an already competitive regional market.

If implemented as planned, the policy could reshape Malaysia’s labour landscape. By raising the cost of hiring foreign workers, even marginally, the government hopes to incentivise local employment, addressing long-standing concerns about over-reliance on migrant labour. Yet, with median wages for foreign workers (RM1,529 in 2023) significantly lower than for Malaysians (RM2,602), the 2 per cent contribution may not fully close the gap. Employers may still find foreign labour more cost-effective, especially if wage disparities persist.

A Balancing Act with Uncertain Outcomes

Malaysia’s mandatory EPF contributions for foreign workers represent a bold attempt to reconcile competing priorities: economic stability, labour market equity, and migrant welfare. On one hand, the policy could bolster the EPF’s coffers, reduce remittance outflows, and encourage local hiring. On the other, it risks placing an additional burden on low-wage workers while failing to deliver substantial benefits if withdrawal mechanisms remain opaque or inaccessible.

The government’s challenge lies in translating intent into impact. If the 2 per cent rate proves insufficient for meaningful savings, or if bureaucratic hurdles prevent workers from accessing funds, the policy may be seen as a hollow gesture. Conversely, if paired with wage reforms or portable social security agreements, it could set a precedent for inclusive labour policies in the region.

As the fourth quarter of 2025 approaches, all eyes will be on how Malaysia navigates these complexities. For the 2.5 million foreign workers who form the backbone of key industries, the stakes could not be higher. Their financial futures—and Malaysia’s vision for a fairer labour market—hang in the balance.