Retirement should be on the minds of working people from the start
THE PRIVATE Retirement Scheme (PRS) launched by the prime minister on Wednesday is the latest addition to the country's "multi-pillar" pension fund structure. It is intended for an ageing population, many of whom might not be saving enough for their golden years, and hence a fundamental policy initiative. Also announced was the Private Pension Administrator (PPA), the scheme's governing one-stop centre. While the Employees Provident Fund (EPF) has for years been the financial mainstay of private sector retirees, time has, however, proven that increasing life expectancy has thrown up the need for additional resources to augment the income of senior citizens. For the most part, the payments to contributors at age 55 and over have proven sadly inadequate, even for the most prudent and even without dependents to support.
The average retiree, according to actuarial calculations, needs about 75 per cent of his or her last salary to be able to maintain a comfortable standard of living he or she has become accustomed to, on condition that purchasing power remains reasonably stable. Getting to that position not only requires a longer working life but the factoring in of additional post-retirement income into the worker's long-term financial planning. As safe as the EPF is, with its conservative approach to investment, it should only be counted on as a mandatory minimum. Anything above that should quite rightly be left to the individual, as the PRS does. The individual should therefore also have a choice between competing options in terms of services and yields.
The PRS if embraced by private sector workers and is, consequently, successful at giving contributors the returns they seek -- better than the EPF -- can do much to secure the future of Malaysians. Not only that, it has the potential of growing the capital market. After all, the outcome is an increase in the rate of savings among the population. Large pension funds are known to be market movers and shakers. If the financial sector remains regulated to maintain prudence there is very little chance that the pension funds here will suffer a fate similar to that in some developed countries hit by the 2008 financial crisis. For as long as the PPA governs with an iron fist to ensure that contributors' welfare is protected, the prospect for Malaysian retirees will be relatively secure given the greater freedom the funds will have in respect to their investment portfolios. From now on, opening an account with one of the funds should be as much a rite of passage as, say, owning a home.