Tuesday 28 July 2009

Laying golden eggs for more Malaysians

THE recent announcement by the government that a new private pension scheme targeting two million self-employed Malaysians, which would be launched by next year, certainly would provide opportunities for people in that category to have a better life post-retirement.

Given that Malaysians now generally have a longer life expectancy, the quality of life post-retirement hinges on how a person plans his or her retirement and how well the plan is executed.
Having huge golden eggs for later days would be more critical to Malaysians, given the cost of maintaining a decent quality of life. It is also important in order to ensure that we have access to quality medical care of which the cost will continue to grow as time passes.

While the model is still being studied by the government, retirement funds are not something new in Malaysia, even for the category that is supposed to be covered by the new scheme. Insurance companies have been offering retirement plans in many forms and structures.

Perhaps, what the government wishes to see is a more structured and regulated pension scheme which would encourage more people to have retirement plans and able to enjoy quality retirement. 

Having a large pool of funds under the proposed scheme would certainly be a positive development for the capital market. It would certainly complement other big investors such as the Employees Provident Fund (EPF) and Armed Forces Fund Board as the provider of capital to companies listed on Bursa Malaysia. 

What is clear from the statement by Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop is that the new pension scheme would be a private sector initiative and would provide market-based returns.

This would also send a signal to Malaysians that while the government provides a safety net such as the EPF, we should be more responsible in planning our own retirement, especially if we wish to maintain the same quality of life we enjoyed while working. Having access to quality advice in considering options in creating our golden eggs would be another part of the jigsaw puzzle which needs attention. 

For example in Australia, to complement the Self-Managed Superannuation Fund scheme, Australians at large rely on their accountants and financial planners for advice. These people are regulated by the Australian Securities and Investments Commission. 

Given the maturity of the industry in Australia, financial planners, among others, provide advice on how to structure the investment which would provide returns that could support the investment objectives of their clients, especially their retirement plans. The fee structure is also changing from percentage of funds under management to fees for advice.

While the financial planning industry exists in Malaysia, the number of independent planners is still small. Most financial planners are backed by institutions which are offering products in the market. 
Even the number of accountants who are involved in financial planning is small. 

This could be due to the licensing requirements which are perceived to be a burden by practising accountants and the financial returns that they could receive from providing financial planning services. 

Perhaps in looking at the model for the pension scheme, the authorities could also consider the supply of independent and competent advisers to ensure contributors to the scheme are doing so with open eyes. Financial literacy among Malaysians needs to be enhanced to ensure their awareness of the risks and rewards in making investments. 

Considering the number of reported cases of investors being cheated through “get-rich-quick schemes”, more needs to be done to provide knowledge and awareness of investments to the general public. 

Professionals such as accountants and financial planners need to be more involved in this effort and not wait for the government to press the panic button before starting to do something. The more involved you are in educating the community; the more relevant you would be to the market.

Another issue that has surfaced through this debate about pension schemes is elderly care. As our life expectancy grows due to better quality of life and medical care, we need to be prepared to have more Malaysians living beyond the retirement age. 

As the lifestyles and social behaviour of Malaysians change, elderly care would be an industry that would grow. We also need to consider the physical and other supporting infrastructure such as social support and specialised homes for Malaysians who have reached their golden years and are less active.

Given retirement is the last phase of life for everybody, the quality of life of those in this category is dependent on the golden eggs carried by them from their working days. 

The pension scheme as proposed by the government would certainly add colour to that phase of life. However, more importantly, we need to ensure the golden eggs being laid would be hatched at the right time and preserved, and their contents should be as promised!

This article was also published in the Fianncialdaily which could be read here: http://www.theedgemalaysia.com/commentary/145923-laying-golden-eggs-for-more-malaysians.html

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