LIAM's wish list for Budget

LIAM has listed down the following that it would like to see in the coming Budget:

• Incentives to promote financial planning
• Separate tax relief of RM6,000 for life insurance premium (rather than combined with EPF contributions)
• Tax relief for child education and medical policies to increase from RM3,000 to RM6,000
• Establishment of private pension schemes

Source: Business Times

Retirement statistics

Some retirement statistics that are relevant in preparation for private pension in Malaysia:

• 12 mil labour force
• 35-40% not covered by retirement schemes
• 2 mil self-employed
• 12 mil EPF members, 5.7 mil active
• 90% of EPF contributors have less than RM100,000 in their accounts
• 70% of EPF members exhausted their EPF savings within 3 years
• Potentially RM60 bil can be channeled into private pension fund

Interestingly, some statistics from Australia for comparisons:

• The average superannuation account balance at retirement:
• Women: A$73,000
• Men: A$155,000

Source: The Edge Weekly (7/9/2009), The West Australian (7/9/2009), both not available online

Articles on Pensions

KPMG published 3-part series on pensions in The Star last few days. Summary of some key points:

• Public pension: social insurance, covers elderly as well as citizen with a need e.g. disabled, lengthening of life expectancy and declining birth rates make the model too expensive
• Occupational pension: employees are rewarded for loyalty, risk of employers going bankrupt, risk of benefits be scaled down when employer is in financial difficulties
• Provident fund: e.g. EPF
• Private pension: intends to cover self-employed and also as top-up scheme for others, regular income either monthly or yearly, government can provide guarantee in case of scheme failure, tax incentives to encourage public to save, number of operators should be limited to achieve economies of scale, various funds available to choose, financial advisors involved to help consumers to choose

Source: The Star 1, 2 & 3

Other articles on pensions appearing in The Star over the weekend cover:

• Australian superannuation system: employers required to contribute 9% of employees salary, 300,000 superannuation funds in operation currently, employees choose which fund to pay to
• Chile pension system: employees contribute 10%, 6 private pension funds to choose from, fund switching allowed

Source: The Star 1 & 2

Articles on insurance/takaful over the weekend

Some of the articles appearing in StarBizWeek Special on 8 August that may be worth reading:

Keeping abreast with changes: Various insurance chieftains touch on issues like financial planning, bancassurance, professionalism, sustainability of business and future challenges and growth drivers.

Innovation key to growth for takaful: Leaders of takaful industry talk on sustainability of takaful industry, liberalisation, bancatakaful, human capital and retakaful.

Linking markets with Islamic finance: Towards the end of the article, BNM governor mentions that the insurance industry has a long way to go and develop products for retirement, pension schemes, annuities and medical coverage. Professionalism and capitalisation need to be increased. There should be more mergers in the domestic sector and the need for setting up enabling infrastructure.

Source: The Star

Pre-Budget focus group meeting

During the focus group meeting with the industry in the preparation for the 2010 Budget, the Deputy Finance Minister made the following remarks:

• Vast scope existed to increase the life insurance and takaful markets, given the current low penetration level of 40.8% and 7.8%, respectively
• Developed economies have market penetration of over 80%

Issue on the lack of private pension funds was also discussed.

Source: Business Times 1 & 2

More news articles on private pension

CIMB Group CEO Nazir opines that private pension scheme should be designed to cater for the low-income earners rather than the rich.

Source: Business Times

SC is seeking the best model for private pension, looking at models adopted in Chile, UK and Australia.

Source: The Star

Insurance companies not in private pension plan

Malaysia Government has proposed a new private pension plan to be implemented by mid 2010 and insurance companies are apparently not in the picture.

The new pension scheme targets the self-employed (approximately 2 million) and those who are outside EPF and government's own pension scheme. EPF members who want to contribute more than the EPF's statutory requirements can also participate. The new pension funds are to be operated by fund management firms to be licensed by the Securities Commission.

In overseas, private pension plans are usually operated by insurance companies as insurance companies have expertise in managing long-term investment and more importantly in insuring longevity. Pension plans without protecting longevity risk at best should only be called retirement plans.

In recent years, insurance companies have also come up with GMxB type of plans (e.g. GMAB, GMWB, GMDB, GMIB) that provide various levels of guarantee on investment returns. All these seem to position them well to be the front runner for managing pension plans.

References: The Star 1, 2 & 3, Business Times 1 & 2

Insurers are cut off from EPF pension scheme

Insurance companies will not be involved in the proposed EPF pension scheme. The scheme will be managed by EPF.

The proposal for such a scheme will be ready in 4 months' time.

The proposed scheme would be compulsory for new members, for existing members, it is optional. There will be health benefits in the proposed scheme. Pension payments will be linked to last-drawn salary.

Source: The Star

Earlier stories:

Pension scheme for private sector employees

Views on EPF Pension

Views on EPF Pension

Various parties have provided their views on EPF pension:

Federation of Malaysian Unit Trust Managers

Believes it can play an important role in helping the people plan early for their retirement.

LIAM

Looks forward to discuss further with relevant parties to design a suitable retirement scheme for the private sector employees.

MTUC

Should have a minimum monthly pension (e.g. RM700) to take care of low-income contributors.

CAP

Against private companies running the scheme, EPF should run it, and it should be a voluntary scheme.

NUBE

Rejects the scheme.

Source: The Star 1 & 2

Pension scheme for private sector employees

The Human Resources Ministry is drafting a working paper for the Finance Ministry on a pension scheme for private sector employees. The aim is to ensure EPF savings last a lifetime.

The working paper would be ready in the next few months.

Source: The Star