By G. Sharmila
Malaysians have one of the least adequate retirement incomes, with Malaysia ranking 47 in Allianz’ Retirement Income Adequacy Indicator, a ranking of retirement income adequacy of pensions provided by 49 countries across the globe.
The Employees Provident Fund (EPF) offers benefits amounting to 34% of final salary at the official retirement age of 55, which fall wells below the Organisation for Economic Cooperation and Development’s benchmark of 60% to 70% nett income replacement rate. (See graph for more information).
According to an official from Munich-based Allianz Asset Management AG, workers close to retirement age today will have exhausted their assets in the first five years of their retirement, citing EPF data.
“Younger workers are well advised to save more, ideally to accumulate savings of 12 to 14 times their last annual salary to ensure an adequate retirement,” Brigitte Miksa, head of Allianz International Pensions. This translates to an an annual private savings rate of 13% to 18% of workers’ income under the current EPF framework, she said.
“Establishing a planned spending phase with annuitisation as a key element is one way to protect individuals against longevity risk,” Miksa told reporters at a press conference today.
According to Miksa, one of the most effective measures to improve retirement income adequacy is to extend working lives. “With retirement entry postponed by as little as five years, workers can afford to lower their annual savings rate to 9% and still achieve a replacement rate of 70% of final salary. Delaying retirement to age 65 allows for a savings rate of 3%,” she added.
She highlighted also that in comparison to other emerging countries, Malaysia has a high formal pension coverage. Nonetheless, the informal groups remain vulnerable groups in terms of pension provision, she said.
The informal sector as defined by Malaysia’s Department of Statistics includes companies not registered with the Companies Commission of Malaysia, employment not subject to labour legislation, social security regulation or collective agreements.
In 2013, the non-agricultural informal workforce was 1.283 million people, of which 640,000 were women and 643,000 men.
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