Academic journal article Global Business and Management Research: An International Journal

An Exploratory Review of Retirement Savings Investment Decisions: A Malaysian Perspective

Academic journal article Global Business and Management Research: An International Journal

An Exploratory Review of Retirement Savings Investment Decisions: A Malaysian Perspective

Article excerpt

Introduction

Retirement savings inadequacies--globally and in Malaysia

The global acknowledgement that pension funds and retirement savings accumulation will fall well below sufficient levels caused by changing demographic trends; unfunded future liabilities; higher fiscal deficits; increasing economic uncertainties; inadequate benefits for retirees; as well as the alarmingly poor retirement savings rates among individuals, has driven many researchers both in quantitative as well as in qualitative works in the past decade in intensifying their efforts on conducting various studies on important psychological influences that are believed to have proximal effects on retirement savings tendencies, which in turn is central to the resultant levels of financial preparedness and stability during retirement (Tasdo & Gunu, as cited in Amoo 2008). Planning for retirement must commence early as acquiring the savings habit requires discipline and adequate time (EPF, 2015). A good plan therefore requires improved levels of personal financial / retirement planning in enabling an individual to achieve a desired lifestyle at retirement supported by sufficient income (Kapoor et al., 2009). However, studies on retirement planning revealed that there is a dearth of sufficient savings among individuals, connoting that such conditions will eventually create a stumbling block towards becoming financially sound and stable during retirement. For instance, American individuals were found to be saving at a worryingly inadequate rate and this raises concerns about their financial solvency and independence during retirement (Glass & Kilpatrick, 1998a; Warner, 1996; Warshawsky & Ameriks, 2000; and Yuh et al., 1998, as cited in Jacobs-Lawson & Hershey, 2005).

Similarly, such unfavourable retirement settings can also be traced to countries such as the United Kingdom, Canada, Singapore, and Thailand, to name a few. For example, the United Kingdom sees concerns of the current generation of workers not saving adequately for retirement (AMST, 2006). Likewise, a study sponsored by the Canadian Institute of Actuaries found that only one in three Canadians expecting to retire in 2030 are saving at appropriate levels in order to meet basic household expenses in retirement. Similarly, evidence produced by Oversea-Chinese Banking Corporation (OCBC) Singapore revealed that 74% of Singaporeans wish to retire before the mandatory retirement age but are ill-prepared for their retiring years. Thailand and its fast aging society are also not spared from this late life dilemma (AMST, 2006). The crux of the matter is the high likelihood of this worrisome retirement savings levels among individuals leading to consequential poverty in old age, or a need to continue working much longer, or a higher burden on governments and therefore future taxpayers as future pensioners rely more on government assistance.

Malaysia is not in isolation of this very predicament. According to the Employees Provident Fund's (EPF) CEO, Datuk Shahril Ridza Ridzuan, the only significant form of retirement savings for most Malaysians is the amount individuals accumulate in the EPF (i.e. the government agency responsible for the compulsory retirement savings of Malaysian private sector and nonpensionable public sector workers) (EPF, 2015). A survey conducted on 2,000 Malaysian retirees revealed that for a large proportion of these retirees, the benefits provided by the EPF, were not adequate to sustain their retirement lifestyle, thus having to rely on contributions from working children as a very crucial component of their retirement income to support their retirement years (Abdul Samad & Kari, 2007). Consistent with this finding, EPF's internal research revealed that only 22% of the 6.7 million active 54-year-old EPF contributors met the minimum recommended retirement funds of RM 196,800 in 2015 (alternatively stated, this minimum recommended amount meant a monthly income of RM820 until age 75, which is below the poverty threshold of RM830 per month in 2012 as indicated by the Department of Statistics Malaysia's poverty line income or PLI) (EPF, 2015). …

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