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.
