Young Malaysians entering the job market may not think ahead enough to consider retirement plans.

Their rationale is that retirement age lies in the distant future and there is plenty of time to save for the later years.

In addition, they may think deductions for the Employees Provident Fund (EPF), taking a minimum 11 per cent slice of their monthly pay slips, will be stored away for safe keeping and compounded to a handsome sum come retirement day.

Given EPF’s growth trackrecord (from 4.5 to 6.15 per cent over the past 10 years) and the fact that contribution is mandatory, they could take comfort in the fact that their lives after retirement would be well taken care of.
Bank Negara Malaysia statistics show that the average EPF contribution per individual at retirement age is RM155,000 but contributors from the lower income bracket may only have RM50,000.

According to the Central Bank, only about one in three people are consciously saving for retirement while 60 per cent do not know exactly how much they need when they call it a day.

According to EPF, 14 per cent of its members use up their contributions within three years of retirement. The figure goes up to 50 per cent within five years and 70 per cent within 10 years.

The fact of the matter is that EPF contributions may not be enough, given the increasingly high living costs and rising cumulative medical expenses with Malaysians now having a longer life expectancy of 71 years for males and 76 years for females, according to 2012 data from the Securities Commission (SC).

“Malaysia has an ageing population with the segment over 55 years of age expected to grow to 16 per cent by the year 2020 in tandem with a rising life expectancy of 75 years for males and 79 years for females by then.

“As a rule of thumb, we advocate that one would need to have RM1.4 million to RM2.8 million to live a fairly comfortable life after retirement, given the current conditions,” said Patrick Donald Archibald, group agency manager of Synergy Planners, a wealth management solutions and services company.

On average, Malaysians’ gross income replacement rate (gross income after retirement divided by gross income before retirement) is about 30 per cent – a far cry from the 66 per cent required for adequate and sufficient funds till death, as recommended by World Bank.

Taking into account the growing needs of Malaysians to fortify their retirement funds beyond their EPF savings, the Private Retirement Scheme (PRS), a long-term voluntary investment scheme, was launched on July 18, 2012 by Prime Minister Datuk Seri Najib Tun Razak.

The launch also saw the establishment of the Private Pension Administrator (PPA) which is an administrative and monitoring body of PRS providers and their contributors while the regulator is the SC.

As part of the Economic Transformation Programme, the main objective of PRS is to address the need to provide for adequate funds upon retirement in order to ensure comfortable
lives for retired Malaysians.

Moving forward, BizHive Weekly explores the various options, advantages, challenges and future outlook of PRS as explained by the PPA and two authorised providers.

Source: http://www.theborneopost.com/2013/05/26/prs-a-need-for-supplementary-retirement-funds-beyond-epf/

13/12/2015 05:49:22

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    June 2013