BESIDES the proposal to increase the retirement age for the private sector, the Government should also come up with measures to overcome the problem of inadequate retirement savings. Among the ideas being talked about is a workable annuity scheme.
A speaker at the recent Malaysian Private Pension and Healthcare Conference 2011, Actuarial Partners Consulting Sdn Bhd senior partner Zainal Kassim, said if the Employees Provident Fund (EPF) or the private sector formed some sort of annuity scheme for retirees, it could be a solution to the problem of people running out of savings soon after retirement.
“We can learn from Singapore's experience, where a retiree is required to purchase some sort of annuity scheme from the money he gets from the country's Central Provident Fund (CPF).
“By keeping some portion of his money in CPF, one will have the guarantee of the annuity being paid properly,” he told StarBiz.
Zainal said this was a good example as one could never know how long he would live.
Besides the annuity scheme, CPF also provides an automated service for monthly mortgage payments.
Additionally, Zainal said, in many countries, the birth rates were lagging behind the mortality rates.
“Thus, by increasing the retirement age, a country's number of workforce could be sustained to maintain productivity.
“Especially for those above 55, being able to work is good for their mind via the interaction with colleagues and mental simulation at work,” he said.
Alternatively, Zainal said, people could opt for private pension funds, especially for the self-employed.
“For those who have EPF (with 23% contribution from their monthly pay), these private funds can act as a complementary support for their retirement,” he said.
Walton International Property Group (M) Sdn Bhd CEO Datuk Abdul Razak Abd Ghani said the debate now was whether the annuity scheme should be voluntary or mandatory.
“Before we decide on anything, the most important effort is to sell the idea that annuity, or apportioning the lump sum EPF money when one retires, is important.
“The lifestyle one wishes to have after retirement should match his savings as well.
“The Government too, must be more proactive in promoting financial literacy in Malaysia,” he said.
On the proposal to extend the retirement age for the private sector, which has received much support, observers said proper checks and balances needed to be in place to provide the instrument for private companies to decide on the age portfolio of their workforce as it was an important aspect of a business operation and productivity.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng told StarBiz that the increase in retirement age could be made optional, especially for those who needed to accumulate enough savings for retirement.
“It is inevitable due to increasing life expectancy and also to maintain productivity of certain companies. If a person retires without enough savings to support him for the rest of his life, it will create problems,” he said.
But Yeah said the issue of whether there would be enough jobs for everybody should also be looked into.
“If not, it will reduce the opportunities for the younger generations for climb the career ladder.
“There would also be the problem of dead-wood', whereby soon-to-retire employees reduce their productivity,” he said.
Yeah said the increase in the retirement age would work well for an organisation that had a “hollow-middle” situation where a large group of their productive professionals was about to retire soon.
“The increase in retirement age must also come with a change in the labour laws, so as to assist employers in prolonging the employment of productive workers.
“There should be a balance between the need to accumulate enough savings for retirement and productivity,” he said.
The EPF is also hoping the Government would raise the retirement age to 60 because a long retirement period is one of the factors that contribute to the inadequacy of retirement savings.
Its chief executive officer Tan Sri Azlan Zainol recently said a factor that worked against the adequacy of retirement savings in Malaysia was the increasingly long retirement period.
“When it was first set up in 1951, the full withdrawal age for our members at age 55 was the same as the Malaysian life expectancy then.
“But some 60 years on, while the full withdrawal age has not changed, the average life expectancy of Malaysians has increased to 75 years.
“Thus, Malaysians today need to save for a 20-year retirement span compared with a shorter one 60 years ago.
“This is a long period and one of the longest in Asean and the world,” he said in his keynote address at the Malaysian Private Pension and Healthcare Conference 2011.
Another factor that influences the inadequacy of retirement savings among EPF members is the spending habit of retirees.
Azlan said that in a survey commissioned in 2003, it was found that 14% of its members finished their retirement savings within three years of retiring, 50% within five years and 70% within 10 years.
Presently, a technical committee is fine-tuning a draft of the Private Sector Retirement Age Bill to be tabled to Parliament, with the aim to increase the retirement age to 60, with an option of a four-year extension, from the current 55.
The committee consists of Malaysian Trades Union Congress (MTUC), Malaysian Employers Federation (MEF) and representatives from the Human Resources Ministry.
It had reached an amicable agreement on the draft Bill.
The retirement age for civil servants was raised from 55 to 56 in 2005. In 2008, it was raised to 58.
It was reported that Cuepacs was also urging the Government to raise it to 60.
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