Foreign workers will earn dividends on their contributions and can withdraw their savings when they permanently return to their home countries, according to new regulations under the national pension scheme, Employees Provident Fund, which is set to take effect in the last quarter this year, according to The Straits Times.

The 2% contribution rate for foreign workers and their employers is lower than the 11% employee and 12-13% employer contributions required for Malaysian workers.

Previously, foreign workers could voluntarily contribute 11% of their salaries to the pension fund, with employers contributing MYR5 (US$1.13) monthly.

Earlier this month the fund announced a 6.3% dividend rate for savings accounts for last year.

The new pension policy aims to level the playing field, making it more attractive for employers to hire locals and reducing remittance outflows from Malaysia.

“If there is no contribution from foreign workers, hiring them would be cheaper than employing local workers… that is why this effort is important, to prevent the imbalance and encourage local employment,” senator Datuk Seri Amir said in Parliament last week.

As of December last year, only 0.9% of foreign workers in Malaysia actively contributed to the national pension fund, official statistics show.

Second Finance Minister Amir Hamzah Azizan said that mandatory contributions would create a fairer labor market, encourage local hiring, and reduce reliance on foreign workers over time.

The policy would also help curb the number of undocumented foreign workers, as only legally registered workers would be eligible to contribute, he added.

Professor Emeritus Barjoyai Bardai of Universiti Tun Abdul Razak said that mandatory contributions could mitigate the impact of remittances sent by foreign workers to their home countries, potentially stabilizing Malaysia’s foreign exchange rate.

In 2023, outward remittances from foreign workers totaled MYR34.2 billion (US$7.7 billion).