When a will has no way
18/03/2007 Sunday Star By Shaila Koshy

THE first thing a fresh working adult does upon getting a job is to open a savings account for his employer to bank in his salary. And soon after, he learns that some of his earnings would be channelled to the Employees' Provident Fund (EPF), together with a contribution from his company. Then he may be told to fill up a form to nominate his beneficiaries for his EPF savings.

Fast forward to 20 years later – he is married and has two children. He keeps abreast of his bank accounts and his investments and continues to contribute to the EPF. But he has completely forgotten to update his list of beneficiaries or plans to but never gets round to doing so. Or since he has made a will, that should suffice, he thinks.

If he is guilty of any of the three and has not updated his list of EPF nominees, his family could find themselves in dire straits upon his death.

But he would not be the only one guilty of placing this burden on his family. Statistically, there are seven million others like him in Malaysia.

“The percentage of members who have made nominations for their EPF savings is 38% (4.3 million members). The remaining 62% (seven million) have yet to elect a beneficiary for their savings,” says EPF Public Relations senior manager Nik Affendi Jaafar.

Hence, the constant reminders by EPF though the media and other ways to get its members to nominate or update their nominations. While the Fund has managed to reduce the number of members who have not nominated any beneficiary from 76% in 1999 to 62% this year, there is clearly much room for improvement.

Many Malaysians seem to think that apportioning their assets in a will takes care of the problem, not realising that nominating an EPF beneficiary is akin to that for an insurance policy.

They are statutory nominations, that is, nominations provided for by law, says senior lawyer Datuk Dr Cyrus Das.

While Regulation 6 of the EPF Regulations 2001 provides for the nomination of beneficiaries, that for insurance policies is contained in Section 163 of the Insurance Act.

Also, Regulation 7(2) and Section 164(2) of the EPF Regulations and Insurance Act, respectively, state categorically that an EPF nomination “shall not be revoked by any will or by any other act, event or means.”

Asked why a will could not supersede the two, Dr Das says there is no similar provision in the Wills Act, 1959.

“The Wills Act governs the formalities of drawing up a will, stressing only that the two witnesses cannot be beneficiaries under the will.”

While there are over 30 countries, such as Sweden, Australia and Hong Kong, that have mandatory or voluntary savings schemes for its citizens in one form or the other, the closest to Malaysia's EPF is Singapore's Central Provident Fund (CPF).

Even in Singapore, a will does not supersede a CPF nomination, says Yap Teong Liang, a family law practitioner there.

Unlike the EPF which urges members to nominate a beneficiary, the CPF only stresses that a member make one if he wishes to distribute the savings differently to intestacy laws. (See table)

The CPF website states: “Your CPF savings are not covered under your will. Your CPF savings will be distributed to your family according to the intestacy laws if you do not have a CPF nomination. You will only need to make a CPF nomination if you wish to distribute your CPF savings differently from the intestacy laws.”

A significant difference is that a marriage or re-marriage automatically revokes an earlier nomination in the CPF, says Yap.

“A divorce, however, does not revoke a nomination. You would have to take steps to revoke an earlier nomination.”

Asked whether the CPF had to remind members to update their nominees, he says no, adding, however, that CPF statements indicate whether the member has or has not made a nomination.

Malaysians, on the other hand, would like the EPF to be more active in reminding members regularly who their nominees are so as to jolt them into making a change if the circumstances of their lives have changed.

Lawyer Ling Hua Keong, who has handled a couple of nomination disputes, says that people generally “forget or are ignorant” of the law.

But the EPF does include a reminder to its five million active members via its Annual Statement of Accounts to make a nomination or update it, said Nik Affendi.

For members who are Internet savvy, there is respite come September. EPF is in the process of transferring nominee data to a new computerised system and it would then be available online for checking.

Unlike CPF members, EPF members seem oblivious to the fact that marriage, divorce, birth and death and conversion to Islam have repercussions on who eventually obtains their EPF savings, often causing distress to family members after the member's death.

How common are disputes in Malaysia?

“One of the main reasons for disputes is because members have stated incorrectly the IC or birth certificate details of the beneficiaries in the nomination form. A simple thing like missing out a number or a letter can lead to big confusion.

“Another reason is when a member submits the nomination form during their dying days. To resolve the dispute, the next of kin need to write in formally to the EPF, and apply for a court order. The court will then determine who is entitled to the deceased EPF savings,” says Nik Affendi.

Then there are cases of divorced women who forget to remove their ex-husbands from their list of beneficiaries. Conversely, there are the homemakers who find themselves out on a limb because their ex-husband has changed his beneficiary after they divorce.

However, lawyer Pushpa Ratnam says it is possible for ex-wives to still stake a claim.

“If my clients are going through a divorce, I advise them to fight for their husbands' EPF savings.

“The court has taken the view that EPF savings are a family asset and have in some cases granted an order to divide the EPF savings as part of the divorce settlement.

“I then inform the EPF once the order has been granted.”

Another area of potential dispute is when an EPF member, in a civil marriage, converts to Islam.

Asked what would happen in a case of a member who converts to Islam but does not change his beneficiaries, Nik Affendi says that the EPF would honour the nomination.

The possible hiccup, however, is if a third party should dispute such a nomination in the court and the EPF leaves it to the court to decide on the distribution of the savings.

To reduce such problems, Women’s Development Collective executive director Maria Chin Abdullah says they have been looking at how the Law Reform (Marriage and Divorce) Act could be used to ensure that converting spouses be made to settle all their civil obligations, either before or after conversion.

Another proposal for reform has come from the Bar Council's Law Reform and Special Areas Committee.

In a memorandum to the EPF in January, it had recommended that the law be amended so that all nominations are revoked upon marriage. It was reported last month that the EPF was interested in the proposal.

On March 9, EPF officials met the committee, which is now to fine-tune its proposed amendments for consideration.

In supporting the proposal that is akin to the Singapore position, Dr Das says new members usually list their parents as beneficiaries when they start working.

“Often, however, the parents would have died by the time the member is deceased and the actual disputants would then be the administrators of the deceased parents and the widow.

“In many cases, the contest would be resolved amicably with the administrators waiving the right to the EPF savings in favour of the widow. The problem arises when there is disharmony in the family and the two parties don’t get along.

“Such a dispute could be avoided by adopting the Singapore position.”

In Singapore, disputes arising over who is to get the benefits are rare, says Yap.

“The law is clear cut. In the event of death and there is no nomination, the CPF funds will be distributed in accordance with the provisions of the Intestate Succession Act. That has helped reduce disputes,” he added.

As the law stands, the EPF has its work cut out reminding members to update their nominations.