THERE has been an enormous amount of (justified) press recently on Malaysia's public pension woes. The coverage is warranted because most of us are statistically inclined to live long instead of short.
So, predictably, Malaysia's too-low official retirement age of 60, against a backdrop of happily lengthening Malaysian average lifespans over the decades, means many of us are facing a retirement funding crunch.
Those who are self-employed in the private sector, who have unwisely opted not to contribute to Malaysia's Employees Provident Fund or EPF, often have also failed to save and invest on their own to create their personal PPP or Private Pension Plan. Making both those errors is catastrophic for these individuals.
At the other end of the retirement funding spectrum are the 900,000+ Malaysian public sector pensioners who have "iron rice bowls" that are refilled each calendar month by the magnanimous Malaysian government, which faithfully pays out valuable monthly pensions.
The best positioned retirees in the country are those who have worked for perhaps 30 or 35 years for the government and are now enjoying their well-earned, well-deserved public sector pensions, and who have also chosen to save and invest on their own — with or without professional guidance — to build up their personal savings and investment portfolios that serve as their PPPs or Private Pension Plans.
Somewhere in the middle of that Retirement Preparedness Spectrum are the public sector retirees who rely solely on their public pensions and also the private sector business owners who eschewed contributing to EPF yet at least built up — through rugged determination over decades — sizeable savings and investment portfolios to fund their PPPs.
PERSONAL RESPONSIBILITY
So, where do you sit on that spectrum? Answer honestly. And where on it do you wish to be sitting in 2034, a decade from today? Finally, how will you morph from your 2024 financial profile to your aspired-to 2034 future self?
Exercising personal responsibility is the core skill required to start and — crucially — sustain a personally funded PPP. Many Malaysians choose not to do so. The wise minority that does do so, though, can work with licensed financial planners and other competent financial intermediaries to improve the planned structure of their additional nest eggs.
As we focus on the value of personally precious pensions, it is imperative for us to understand that for our country — or any country, for that matter — to develop its economy well, a sizeable chunk of its annual budget must flow into viable development projects.
Sadly, we in Malaysia cannot do so in a meaningful manner through pure government revenue because our operational expenses, dominated by gargantuan public sector remuneration payments to our current 1.7 million civil servants, plus those made to honour lifetime pension obligations to more than 900,000 retired civil servants, are too high. So, to raise additional money for needed development projects, Malaysia must issue debt instruments like sovereign bonds.
All this has gone on for so long that it is "business as usual". But we need to get our house in order if we ever wish to put Malaysia on an improved fiscal or budgetary footing in the future.
PLANNING FOR RETIREMENT
Our infamous 1MDB fiasco has left all Malaysians with an added national debt burden. Furthermore, the ceaseless investigations the MACC (Malaysian Anti-Corruption Commission) is conducting on once untouchable high-ranking individuals are throwing a light on the systemic wastage of national wealth regular Malaysians have had to stomach for decades.
Also, the current and future strain public pensions do — and will — place on Malaysia's finances are huge and escalating. These public pensions fall within the broad purview of Defined Benefit (DB) retirement plans.
Around the world, countries have had to abandon DB plans in favour of Defined Contribution (DC) ones. The deluge of money flowing regularly into our mighty EPF from millions of contributors each month is a successful example of such a superannuation initiative that has run for more than 70 years.
It would be wise for most of us, regardless of whether we are in the minority that enjoys lifelong DB government pensions or the majority that doesn't, to create our own PPPs, which are examples of DC retirement plans. Doing so might ideally involve contributing voluntarily to EPF and aggressively into a well-diversified portfolio.
Note: I hold a Malaysian Securities Commission-issued Capital Markets Services Representative's Licence (CMSRL) as a financial planner. Unsurprisingly, I believe that working with a carefully selected licensed financial planner can help both public and private sector individuals optimise their aggregate retirement funding plans (A great resource to use for vetting possible professionals to hire is the SmartFinance portal at https://smartfinance.my/planners where you may search for a licensed financial planner by name, state or even areas of expertise).
For instance, when consulting with my own financial planning and retirement funding clients, I teach them the value of thinking about their wealth-building initiatives as crucial portions of a metaphoric barbell. (You may learn about it here: www.nst.com.my/lifestyle/sunday-vibes/2023/08/942297/money-thoughts-mone....)
Whatever else you may decide to do after reading this, please also start or, better yet, strengthen your precious Private Pension Plan.
© 2024 Rajen Devadason
Rajen Devadason, CFP, is a securities commission-licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com. You may also follow him on X@Rajen Devadason and on YouTube (Rajen Devadason).