Issue No.55


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How can a private pension fund help you

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561

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Meeting long-term financial needs

When it comes to investing for retirement, there are many vehicles to help investors to meet their goals. However, retirement has become very expensive. Frequently people planning for retirement complain of having saved insufficient amounts of money to maintain lifestyles that they are used to.

Better healthcare and living standards have also increased average life span to 69.3 and 74.1 years for rnales and females respectively. This means your retirement money has to tie you over for a longer period of time. Future cost of living will no doubt skyrocket significantly, already medical costs are rising beyond what some can afford. It is time to rethink how to save and better manage your money.

A little goes a long way

For Judy, a marketing executive with a multinational company, saving has been a priority from the day she started working six years ago even though the bill for retirement seemed a long way off. She saves by having an amount of money deducted from her monthly salary.

She points out the benefits of special savings scheme such as the Employee Provident Fund (EPF) and her company's private pension fund. "You don't see it so you will not spend" is her rationale.

She is fully cornmited to her savings program and is confident of meeting her retirement goals. Given the effects of inflation, saving for retirement during your working life is imperative, especially for young workers.

During the boom period, the workforce in Malaysia has grown significantly. In a near perfect employment environment, the labour force has risen by 19% from 1991 to 1997 as shown in Table 1. Today, workers make up half of the country's population.

Table 1. Labour Force and Unemployment Rate in Malaysia


Labour Force (thousands)

Unemployment Rate (%)






















Source:Economic Reports 1997/1998
Figure for 1997 is forecast

A larger proportion of these workers now realize that they need to save and invest during their working years in order to provide for their financial needs in retirement.

Unlike Judy, there are many who simply do not have the discipline to save although they recognize that a little can go a long way. For those who do not have the discipline to save, special savings schemes provided by employers or the EPF can be an alternative form of forced savings.

EPF is inadequate

The Employees Provident Fund Act 1991, which came into force on June 1, 1997 and succeeded the Employees Provident Fund Act 1951, is designed to encourage employers and their employees to contribute from their current earnings for long-term benefits.

Currently the EPF requires a 12% mandatory contribution from the employers with employees contributing 11% of their income. However, money in the EPF may not be enough to maintain your standard of living 30 years from now. One should not rely solely on the EPF to provide enough spending money upon retirement Higher cost of living in the future will require more from your nest-egg. Judy is lucky enough that her company has set up a pension fund for its employees.

The changing of conventional wisdom

Traditionally, most pension funds were set up by government bodies but not anymore. Many have begun to recognize the importance of private pension funds as a means to supplement their retirement needs. Some employers set up pension plans as part of their staff benefits.

The saving incentives helps prevent excessive staff turnover and job-hopping, a common trend particularly in times of booming economy. Employers are starting to recognize that they can to some extent help their employees by providing them of their dependents with income or capital upon retirement.

The goal of a pension fund is basically to provide you with a lump sum to secure your long- term financial needs upon retirement In other words, it is designed to provide the employees with a defined amount of benefit upon their retirement