Analysis Of Retirement Age Policy in Malaysia

The meaning of retirement can be defined as the period when a person stops working completely and begin a new phase of life. For the records, it is estimated that on average, everyday there are about 12,000 baby boomers turning into 50. According to the vital statistic from Malaysia’s Department of Statistic; in the year 2010, the average life expectancy in Malaysia has been raised to 71.7 years and 76.6 for females. Also according to the US Central Intelligence Agency’s World Facebook (2012), the present Malaysian life expectancy is the third highest in Southeast Asian region following Brunei (76 years) and Singapore (82 years), respectively.

A life expectancy is the statistical measure of average age that a group of people would be expected to live based on Internal Revenue Service (IRS) issued by each country.

Retirement plans for Malaysia enforces a compulsory retirement age of age 60 for public sector employees. Early retirement can also been chose by the people if they fulfill the requirement which is at age 40 after at least 10 years of government service.

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Public sector workers are provided with two types of retirement schemes, including the pension scheme which entails a monthly fixed income, a service gratuity and also free medical treatment at government hospitals. The Employees Provident Fund scheme which is known as EPF provides for retirement through a mandatory savings account in which employees and employers make monthly contributions. The government has a mandatory retirement saving scheme for all Malaysians working in the private sector. The retirement age in the private sector is 60.

However, according to the research survey from HSBC 2013, there is three-quarters of respondents had saved enough for retirement, although nearly half of them who were not prepared did not realize that they were underfunded until after they had stopped working. Furthermore, the percentage of retirement income that comes from pensions is much lower in Malaysia than many other countries, with public and private pensions combining to comprise a mere 30% of all retirement income.

In Singapore, the minimum age of retirement in Singapore is 62 according to the Retirement Age (RA) Act. The Singapore government implements a comprehensive social security savings plan called The Central Provident Fund (CPF). As of 2018, the employer's CPF contribution is 17% for those up to age of 55 and decreases to 7.5% for those 65 and above. The employee's CPF contribution is 20% up to age 55 and decreases to 5% for those 65 and above. Under the plan, all working Singaporeans and their employers make monthly contributions into three CPF accounts. Savings in Ordinary Account (OA) can only be used for specific expenditures such as investment, education, CPF insurance and to purchase a home. The Special Account (SA) is earmarked for a person’s elderly years and investments in retirement-related financial products. Finally, the Medisave Account (MA) can be used for medical purposes, such as hospitalization costs and approved medical insurance. The HSBC 2013 survey stated that Singapore is one of the best prepared nations of the world for retirement plans, with a whopping 88% of respondents stating that they were able to save enough during their working years to retire comfortably.

Government Policies

During the Public Sector Workers’ Day Gathering 2008 happens in Putrajaya International Convention Centre, Prime Minister of Malaysia had announced to increase the age of compulsory retirement for civil servants from age 56 to 58 effective from 1 July 2008. As the government has discovered that most of the people were not having sufficient savings for their retirement plan, thus government had decided to increase the age for compulsory retirement age in order to allow people had more savings in their retirement schemes. On the other hand, Singapore’s minimum retirement age is 62 years old. This indicates that Singaporean are not allowed to dismiss any employment until 62 years old. However, from 1 July 2017 government of Singapore has announced that employers must offer re-employment to eligible employees who turn 62 up to the age of 27, this provides a chance for older workers to work at a longer time if they wished so.

While for the view of the pension system, Malaysia has agreed to abolish the condition that amount of derivative pension will be reduced to 70% after 12.5 years from the date of retirement or death of the officer while in service. According to the detailed research, this condition has brought about to financial burden on the pension recipients with young children after death of the officer. To reduce this burden, the government will pay at the rate of 100% throughout the period of eligibility of the pension. The mother or father of an officer who dies without leaving any other next-of-kin will be given a lump sum ex-gratia payment instead of derivative pensions effective 1 January 2009.

In the 2014 Budget tabled on 25 October 2013, the Prime Minister had announced an incentive of RM500 to contributors who participate in the PRS scheme to inculcate the importance of savings from an early age. The RM500 is a one-off contribution by the Government to young Private Retirement Schemes (PRS) members (aged between 20 and 30) to encourage youths to undertake long-term savings for retirement through the PRS. Besides that, as announced in Budget 2012, an individual is eligible to have a Tax relief up to RM3,000 per annum. The individual tax relief is applicable on gross contribution. Singapore’s pension system is one of the oldest and most developed national schemes in Asia. From the age of 62, Central Provident Funds (CPF) members may claim their pension. Beneficiaries are free to buy a life annuity, place their assets with a participating bank as a fixed deposit or leave it in their Retirement Account to earn interest. If they do not choose one of these options, the default option applies, through which the beneficiary will receive payments for a period of 20 years.

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