Weigh plans to boost private pension funds

  • Business
  • Wednesday, 13 Oct 2010

THE vast amount of retirement money pooled at the Employees Provident Fund (EPF) has always attracted a lot of attention.

Not content with the 5% interest that can be obtained on a compounded basis, savers get convinced that they can make it grow further through various investment schemes.

This is not to discourage people from using investment schemes to further grow their retirement money.

Studies indicate that many retirees with RM100,000 to RM200,000 left in their EPF accounts may be able to survive only two to three years on those amounts.

Even for those with higher levels of savings, the situation may be uncertain especially with longer life expectancy.

One can be quite alarmed at one’s inadequate savings when playing a simple game that is sometimes distributed by financial consultants, that considers the present age, average lifespan and required expenditure per month after retirement.

After seeing the figures, one may get into somewhat of a panic and start looking around for ways to firstly, trim down expenses and secondly, double or triple one’s money as fast as possible.

In this regard, aspirations to boost the private pension fund industry have to be weighed carefully against the need to protect our retirement money which should not be parked in risky assets.

There should be a well-planned education programme where EPF depositors are briefed on the pros and cons of the various investment schemes, the background and track record of the fund management companies involved as well as the markets and instruments they invest in.

No doubt investors are more curious nowadays but many are busy with their daily lives with little time to really explore their investment options.

It is not sufficient to have one-day seminars but the education process has to be on a long-term basis, with updates that can be obtained in a transparent manner.

Worth noting is that Japan’s public pension fund, the world’s largest, has issued a tender to select fund managers for planned investments in emerging market equities.

According to an official of the fund, a small amount for investments in emerging markets is being planned.

Nevertheless, this will mark the first time for the Japanese government pension investment fund (GPIF), which holds about US$1.4 trillion in assets, to dip its hand into emerging market equities, using the MSCI main emerging market stock index as its benchmark.

The lure of the emerging markets is strong but history has shown that they can suddenly cool as fund inflows reverse or capital controls take place.

Already, various countries such as Thailand, Japan and China have respectively slapped a tax on foreign investment in government debt; vowed to intervene anew to weaken the yen, and talked down the prospects of a faster rise in the yuan.

Most pension funds are heavily invested in high quality bonds which are considered among the safest assets.

Still, one can never tell what will happen when the gates are opened a bit more and new players emerge.

In this respect, a lot of pressure is placed on those in charge to monitor the performance of the private pension schemes and their returns to the accountholders.

●Senior business editor Yap Leng Kuen is against any gambling away of retirement money.

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