Finding the right pension model

While the Securities Commission (SC) says it is in the midst of finding successful private pension fund models that best fit Malaysia, fund managers want the models to be transparent and give investors the right to choose their fund managers. Financial planners, meanwhile, say the proposed funds should provide some form of incentives to ensure its successful implementation, reports The Star ( July 25, 2009).
Fortress Capital Asset Management (M) Sdn Bhd chief executive officer Thomas Yong said the proposed pension fund should be liberalised similar to models in many developed nations that allowed savers to choose whom they wished to manage their savings nests.
"If the fund is sufficiently liberalised like that in Australia, savers will have the choice of who manages their investments and what they invest in. While the message is clear that everyone including the self-employed should save for the long term, the issue is who should decide how these savings are managed.
"Should the savers be allowed to decide, with the fund providing adequate disclosures and information, or should the fund decide arbitrarily based on some national average," ,” he told the newspaper.
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In any case, he felt the regulatory framework and disclosure standards must first be put in place to ensure effective transparency and liberalisation. A fund manager, who wished to remain anonymous, said the SC while scouting for suitable fund models should ensure investors would be kept informed of the performance of the pension funds managed by all participating fund managers.
“It is not sufficient that the funds’ performance only be disclosed to the regulators, as this will cause doubts among the retirees and the self-employed,” he added.
To ensure the success of such funds, the SC also needed to have asset allocation limits and determine the type of investment instruments permitted for the fund, apart from an appropriate ceiling on fees that fund managers may charge, said Yong. The SC, as the regulator of the proposed funds, is currently gathering input from various jurisdictions to ensure the adoption of successful private pension fund models.
Malaysia is set to have private pension funds by the middle of next year and several fund managers have shown keen interest to manage these funds.
Great Vision Advisory Group head of tax and financial planning Datuk Chua Tia Guan said the funds should not be too flexible to enable contributors to withdraw a lump sum upon retirement as it would easily be exhausted in a short period as in the case of Employees Provident Fund (EPF) withdrawals.
“The government should also provide tax break for the participants of the private pension funds in addition to the current tax relief given on insurance and EPF of RM6,000.
“In Singapore, the government provides tax relief for those who participate in the Supplementary Retirement Scheme, which was introduced many years ago, in addition to the Central Provident Fund,” Chua noted.
He added that proper studies should also be conducted to ensure the funds did not experience similar fate as the disastrous insurance annuity scheme introduced years back. A licensed financial planner said it was meaningless for existing EPF contributors to invest in pension funds unless certain tax benefits were provided.
Licensed financial adviser Jeremy Tan of Standard Financial Planner Sdn Bhd, on the other hand, said the launching of these funds would not be an issue as there was sufficient existing regulatory supervising and monitoring of legitimate investment schemes in the country.