The much talked about private pension funds will kick off by the middle of next year.
Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop, who announced this, said the new scheme would target the two million self-employed and those who were outside the current pension scheme.
He said the new pension funds could either be operated by new fund management firms to be licensed by the Securities Commission, or by existing firms.
The funds would be regulated by the Securities Commission.
“Several fund managers have already shown keen interest,” he told a press conference after delivering his keynote address at the Forum on Private Pension Industry Retirement Funds here yesterday.
Nor Mohamed said the scheme would target self-employed individuals who currently did not contribute to the Employees Provident Fund or those who wanted to contribute more than the EPF’s statutory requirements.
“We have to ensure it is well managed as it is a pension fund, a fund for individuals in their old-age,” he said.
He said the EPF had a government guarantee of 2.5% return.
“The private pension funds should be able to provide a ‘market return’ at any point of time,” Nor Mohamed said when asked on investment returns.
“The EPF has RM340bil in assets now. These private pension funds have huge potential,” he said, adding that there were currently 5.7 million active EPF members.
Nor Mohamed said the funds were part of the Government’s effort to reform the pension fund industry.
“This is crucial as Malaysia moves towards a developed and high income nation,” he said, adding that such funds would be a boost to the nation’s capital markets.
He said the SC had been tasked to prepare a report containing further details within the next six months.
“The Government at the same time will look at its own pension scheme and the Employees Provident Fund (EPF), and head a committee to coordinate all aspects of the pension reform,” he said.
In a survey by the EPF, it was found that around 90% of members have less than RM100,000 in their accounts and more than 70% would have exhausted their money within three years of withdrawing the lump sum upon retirement.
“This underlying trend reflects the sole dependence of retirees on their EPF savings as a safety net and as such, the inadequacy of sustainable levels of income after retirement,” he noted.
He said Malaysia had pension coverage via EPF, the Public Sector Pension Scheme and Lembaga Tabung Angkatan.
“However, there are gaps in the existing pension framework,” he said.
SC chairman Tan Sri Zarinah Anwar said the regulator would make capital preservation and investor protection top priorities when it came to the funds.
“We are gathering input from successful private pension funds models in other countries. We will then try and adopt the best practices to start off on the right footing,” she said.
Areca Capital Sdn Bhd chief executive officer Danny Wong said it “would take some time” to see the impact of the funds on the capital market.
“It all depends how individuals respond,” he told The Star.