High Court Ruling on EPF Account Mergers: A Cautionary Tale for Families

 

For many people, the savings in an Employees' Provident Fund (EPF) account may be the only savings or legacy left them. The EPF is a critical savings system designed to help a large portion of the population build personal savings for their retirement years. By compelling regular contributions from employees and employers, the EPF ensures that individuals have a financial cushion in their old age. Beyond securing retirement, the EPF also acts as a legacy tool, allowing contributors to pass on their accumulated savings to their families, thereby providing financial stability and support to their loved ones after their passing. This dual purpose marks the importance of the EPF in fostering long-term financial security and intergenerational wealth transfer.

The recent decision of the High Court in Shah Alam in Divyyaa Machap v Lembaga Kumpulan Wang Simpanan Pekerja reveals how public expectations of the fund can be undermined by the interpretation of laws governing the distribution of funds in a deceased contributor’s account.

This unprecedented case involved a contributor who had two EPF accounts. How this happened is not explained in the judgment, but it appears that the First Account was created with the contributor’s old identity card, and the Second Account with his new identity card. While the First Account had no funds in it, it did have a nominated beneficiary. The Second Account contained funds but had no nominated beneficiary.

The two accounts may not have caused any problem to a subsequent claimant to the funds. The beneficiary to the First Account would have found no funds in the First Account whilst claims to the funds in the Second Account would have been determined by the laws relating to the distribution of the estate of deceased persons including the provisions of the Probate and Administration Act 1959.

However, as the Court found, the situation became complicated when the EPF merged these two accounts into a single account. In the process, the Second Account was subsumed into the First Account. EPF’s action effectively deleted or erased the Second Account, leaving the contributor with only the First Account. The effect of the merger was that the account with a nominated beneficiary but which had no funds now had all the funds of the contributor.

The merger led to competing claims to the contributor’s funds upon the contributor’s death; between the named beneficiary to the First Account and the contributor’s daughter, who was the administrator of the contributor’s estate.

The daughter/administrator challenged the EPF’s decision to merge her father’s accounts and its subsequent decision to regard the beneficiary of the First Account as the beneficiary of the merged account.

The Court ruled in favour of the EPF. It decided that while the law did not provide the EPF with the power to merge accounts, there were no provisions within the Act, Regulations, or Rules that explicitly prohibited such action. Consequently, the Court concluded that the EPF was entitled to exercise its administrative powers to merge the contributor’s accounts.

The Court acknowledged that its decision would have a devastating impact on the Plaintiff, but it emphasized that the EPF's role was to perform its duties as mandated by statute, without any vested interest in the outcome. The Court also noted that while the contributor had not nominated a beneficiary for the merged account, he had not cancelled the beneficiary nominated for the First account.

With respect, the decision of the Court is not entirely satisfactory. While it may in some circumstances, be reasonable to imply that EPF had the power to merge accounts as an administrative action, doing so without placing on the EPF a corresponding obligation to inform the account holder about the implications of the merger is clearly unjust. At the very least, the EPF should have requested confirmation from the account holder if he wished to maintain the nominated beneficiary in the merged account. If the EPF was unable for any reason to determine the contributor’s intention, it should not have merged the two accounts which they had obviously approved at the time they were created.

EPF could have assumed from the circumstances that the account holder felt no need to change or cancel the beneficiary he nominated to the First Account as there were no funds in that account and that he did not nominate a beneficiary to the Second Account because he intended the funds in that account to devolve according to the Probate and Administration Act 1959. Contributors may not have named a beneficiary precisely because they intended their savings to be distributed in accordance with laws governing the distribution of estates and not to a single beneficiary. It would therefore be wrong to attribute to the contributor any blame for the events that led to the case.

The case reveals potential pitfalls in the administration of EPF accounts, highlighting the importance for families to establish the intentions of contributors, especially principal breadwinners of the family, regarding the distribution of their EPF savings while the contributor is still alive. However, these are sensitive matters which most families would be reluctant to broach. Hence, it must fall on the EPF to show greater engagement with contributors when they make crucial changes to their accounts and not claim the changes were made as an administrative right.  They must also be engaged to a greater degree in educating the public on the complexities of how the fund is managed through media, trade unions, and employee associations. If an individual is entitled only to a single account, that information must be reiterated to the public, whether it is law, policy or simply an administrative convenience.