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Retirement issue in Malaysia

Publish date: Mon, 27 Mar 2023, 02:00 PM

KUALA LUMPUR: Malaysia is expected to become an aged nation by 2030, with 15 per cent of the population aged 60 and above.

This poses a demographic challenge as well as an investment challenge for the Malaysian retirement savings landscape to finance old-age consumption that will increase continuously, the Securities Commission (SC) said in its 2022 Annual Report.

"Malaysia has adopted a holistic and multi-faceted pension ecosystem that is equipped to mobilise savings and facilitate the rakyat's retirement planning needs.

"This is anchored on a multi-pillar pension framework and includes mandated public pension plans as well as voluntary private pension schemes through private retirement schemes (PRS) that are regulated by the SC," the report said.

There has been growing acceptance of PRS as an alternative vehicle to supplement and complement the mandatory public pension system.

This is evidenced by an increase in the number of PRS contributors by 7.5 per cent per annum from 416,913 members in 2018 to 557,000 members in 2022.

Despite the private and public avenues available for Malaysians to save and invest for their retirement, there are still gaps in the levels of savings most have available for retirement.

The formal retirement system only covers about 60 per cent of the labour workforce - most of which have insufficient retirement savings.

This problem has been worsened by the recent early withdrawals of retirement savings to tide over cashflow needs through the pandemic.

Meanwhile, the remaining 40 per cent of the workforce are yet to be covered by mandatory savings. This could potentially grow as more workers enter self-employment and the gig economy.

"The SC recognises that moving the needle on retirement security with respect to private sector solutions requires partnership and collaboration between retirement stakeholders on multiple fronts - including policy development, product innovation and investor education.

"The SC is also continuously in search of novel ways to address the adequacy of retirement savings," the report said.

One such means involves approaching the problem through a behavioural lens and applying behavioural insights to encourage greater retirement planning among Malaysians.

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