M’sians not fully ready for retirement

M’sians not fully ready for retirement
Business & Markets 2013
Written by Zatil Husna Wan Fauzi of theedgemalaysia.com
Tuesday, 06 August 2013 09:57

KUALA LUMPUR: Malaysians are not fully prepared for retirement as the current pension system focuses on wealth instead of income.

Allianz Asset Management head of international pensions Brigitte Miksa said although the government has focused on retirement wealth, the issue arises when pensioners overestimate the life expectancy and outlive their retirement incomes.

Currently, employees in the private sector contribute a portion of their salaries to the Employees Provident Fund (EPF) and those in the public sector to Kumpulan Wang Persaraan (Diperbadankan).

“This way, retired individuals only get accumulated wealth, not income like a monthly salary.

“This is a problem in which most retirees will finish up their retirement wealth before time,” Miksa said on the sidelines of a talk on the retirement scenario in Asia and Malaysia organised by Allianz.

She said while the Malaysian retirement system is fiscally solid, the flaw in the country’s pension scheme is a lack of retirement income provision.

Miksa said what makes an efficient retirement system is still being debated not only here but even in Western countries.

She said the two biggest challenges to the local pension scene are the increased longevity and erosion of the traditional family structure.

“People think of capital loss hence they will want diversified income that has diversified risks.

“We can see that people underestimate their longevity, thus leaving them unprepared when they live longer than expected and with insufficient financial support system,” Miksa said.

For example, she said pensioners, who have average savings of RM160,000, will use them up within five years, hence depending on family members for financial support.

According to a report, increasing the retirement age to 60 years from 55 is only a stop-gap measure and does not resolve the current problem of insufficient retirement income.

“Even at a low replacement rate of 50%, an investment drawdown plan yielding 3% after inflation will be insufficient for 17 years, which leaves more than half of all retirees in a cohort without any income at the end of their retirement period,” it said.

About 24,000 Malaysians have subscribed to a private retirement scheme since it was launched last October.



This article first appeared in The Edge Financial Daily, on August 06, 2013.