Ready for a retirement transformation?
By CAROL YIP
NO doubt about it, 2009 was ne of the most economically challenging years because it has impacted the way Malaysians view their personal financial futures.
It may even trigger the Baby Boomers (aged 64 to 46) and Generation X’ers (aged 45 to 30) to relook their retirement planning processes to ensure financial sustainability for old age.
We will be confronted with situations of not having enough money for old age if our retirement savings suffer from continuous financial pressures like consumerism, inflation and financial market volatility.
And if this situation continues collectively as a nation, it can pose challenges for the Government in financing retirement, old age living and healthcare as we move towards an ageing society.
By 2020, Malaysia’s population above the age of 60 will increase to 3.2 million, or 9.5%. The United Nations, in its guidelines, classifies any nation with 10% of its population above the age of 60 as an aging nation.
Even if we are slightly under the 10% mark in 10 years’ time, we should be planning and implementing retirement policies now so that the future economic stresses of our ageing society are lessened.
Like the saying – “An ounce of prevention is worth a pound of cure” – year 2010 is the turning point of a new decade to implement new retirement strategies and policies, with collective effort required from the Government, employers and individuals.
The big picture
We must take a new approach to creating a progressive “silver society”. Retiring and growing old will no longer be synonymous with declining wealth and health if we start to take proactive steps while learning from developed countries.
The World Economic Forum September 2009 report on “Transforming Pensions and Healthcare in a Rapidly Ageing World: Opportunities and Collaborative Strategies” was published at a time when the economic crisis was stimulating new critical thinking about fundamental retirement and ageing challenges.
A concerted effort from government, private sectors and civil societies is essential to address an ageing population with declining labour force, and alarming healthcare and pension benefit costs, according to the report.
It highlights 11 strategic options to better cater for the changing retirement and healthcare expectations. While each strategic option could stand alone, their strength lies in their synergy and complementarity.
We shall focus on two of the 11 options which can be easily implemented, as the others require more effort and time.
Promote work for older cohorts
This implies shifting public policy, business practices and personal behaviour towards lifetime employability and active ageing. For many people, productive employment is now possible and desirable well into the 70s.
Life expectancy has increased by around two decades in the last half century, while retirement ages in many countries have changed very little.
Our mandatory retirement age in Malaysia is at 56 years for the private sector and 58 years for government employees. If life expectancy increases into the 70s, it will mean that, on average, a Malaysian will have almost 20 years of no work and no pay.
There are many positive implications of increasing the mandatory retirement age to, at least, 65. Baby boomers and generation X’ers have more years to earn money, more contributions to the Employees’ Provident Fund, more savings for investment opportunities and less years idling before passing on. Increasing the mandatory retirement age may also help to lessen the Government’s economic stress and overcome the declining labour market.
Financial education and planning advice
In the area of retirement, individuals are increasingly expected to take responsibility for the management of risks and determining their level of retirement income, and must bear the consequences of wrong or inappropriate decisions.
Financial education is the process by which individuals improve their understanding of insurance, investment, retirement saving products and concepts.
This enables them to become more aware of risks and opportunities, develop the skills and confidence they need to make informed choices, know where to go for help, and take effective action to ensure an adequate retirement fund.
Financially literate individuals are more likely to plan responsibly for their old age. However, policy-makers and financial providers must acknowledge that financial education alone may not be sufficient to overcome behavioral biases such as a tendency to procrastinate about retirement savings decisions.
“Every cloud has a silver lining” if we are successful in implementing some of these strategic options which are relevant to us in the next 10 years. I am sure there will be new opportunities to build a vibrant “silver economy” where wisdom and experience are valued as much as youth in our society.
Yip is a personal financial coach and also founder and CEO of Abacus for Money.
Categorization of the strategic options
Key Strategic Objectives Selected High-impact Strategic OptionsIt may even trigger the Baby Boomers (aged 64 to 46) and Generation X’ers (aged 45 to 30) to relook their retirement planning processes to ensure financial sustainability for old age.
We will be confronted with situations of not having enough money for old age if our retirement savings suffer from continuous financial pressures like consumerism, inflation and financial market volatility.
And if this situation continues collectively as a nation, it can pose challenges for the Government in financing retirement, old age living and healthcare as we move towards an ageing society.
By 2020, Malaysia’s population above the age of 60 will increase to 3.2 million, or 9.5%. The United Nations, in its guidelines, classifies any nation with 10% of its population above the age of 60 as an aging nation.
Even if we are slightly under the 10% mark in 10 years’ time, we should be planning and implementing retirement policies now so that the future economic stresses of our ageing society are lessened.
Like the saying – “An ounce of prevention is worth a pound of cure” – year 2010 is the turning point of a new decade to implement new retirement strategies and policies, with collective effort required from the Government, employers and individuals.
The big picture
We must take a new approach to creating a progressive “silver society”. Retiring and growing old will no longer be synonymous with declining wealth and health if we start to take proactive steps while learning from developed countries.
The World Economic Forum September 2009 report on “Transforming Pensions and Healthcare in a Rapidly Ageing World: Opportunities and Collaborative Strategies” was published at a time when the economic crisis was stimulating new critical thinking about fundamental retirement and ageing challenges.
A concerted effort from government, private sectors and civil societies is essential to address an ageing population with declining labour force, and alarming healthcare and pension benefit costs, according to the report.
It highlights 11 strategic options to better cater for the changing retirement and healthcare expectations. While each strategic option could stand alone, their strength lies in their synergy and complementarity.
We shall focus on two of the 11 options which can be easily implemented, as the others require more effort and time.
Promote work for older cohorts
This implies shifting public policy, business practices and personal behaviour towards lifetime employability and active ageing. For many people, productive employment is now possible and desirable well into the 70s.
Life expectancy has increased by around two decades in the last half century, while retirement ages in many countries have changed very little.
Our mandatory retirement age in Malaysia is at 56 years for the private sector and 58 years for government employees. If life expectancy increases into the 70s, it will mean that, on average, a Malaysian will have almost 20 years of no work and no pay.
There are many positive implications of increasing the mandatory retirement age to, at least, 65. Baby boomers and generation X’ers have more years to earn money, more contributions to the Employees’ Provident Fund, more savings for investment opportunities and less years idling before passing on. Increasing the mandatory retirement age may also help to lessen the Government’s economic stress and overcome the declining labour market.
Financial education and planning advice
In the area of retirement, individuals are increasingly expected to take responsibility for the management of risks and determining their level of retirement income, and must bear the consequences of wrong or inappropriate decisions.
Financial education is the process by which individuals improve their understanding of insurance, investment, retirement saving products and concepts.
This enables them to become more aware of risks and opportunities, develop the skills and confidence they need to make informed choices, know where to go for help, and take effective action to ensure an adequate retirement fund.
Financially literate individuals are more likely to plan responsibly for their old age. However, policy-makers and financial providers must acknowledge that financial education alone may not be sufficient to overcome behavioral biases such as a tendency to procrastinate about retirement savings decisions.
“Every cloud has a silver lining” if we are successful in implementing some of these strategic options which are relevant to us in the next 10 years. I am sure there will be new opportunities to build a vibrant “silver economy” where wisdom and experience are valued as much as youth in our society.
Yip is a personal financial coach and also founder and CEO of Abacus for Money.
Categorization of the strategic options
Control and transform demand:
1. Promote work for older cohorts
For many people, better health in old age means productive employment is now possible and desirable well
into their 70s. Coordinated action to change public policy, business practices and personal behaviour can
promote lifetime employability and active aging.
2. Shift delivery of healthcare to a patient-centred system
Instead of a reactive focus on curing disease, patient-centred healthcare systems have a proactive focus on
maintaining good health. Such a fundamental reorientation of healthcare systems can help reduce the
incidence of preventable chronic diseases in old age.
Stimulate consumer empowerment
3. Promote wellness and enable healthy behaviours
Lifestyle factors and behavioural choices play a major role in determining the level of health in old age.
Making people aware of the health consequences of their choices must, however, be accompanied by creating physical and social environments that are conducive to healthy behaviours.
4. Provide financial education and planning advice
Financially literate individuals are more likely to plan responsibly for their old age. Improving awareness and
understanding of private pensions and retirement saving products enables people to make informed choices
and take effective action to ensure an adequate retirement income.
Strengthen funding and savings
5. Encourage higher levels of retirement savings
As public pensions increasingly offer lower replacement rates, retirees’ standards of living depend more on
their level of complementary private benefits. Incentives and opportunities need to be provided to expand
participation in, and increase contributions to, private pension systems.
6. Facilitate the conversion of property into retirement income
Reverse mortgages (or “lifetime mortgages”) allow elderly individuals to release equity in their home without
the need to sell the home and move to a smaller property. Borrowers can choose to receive the loan in the form of a lump sum, a series of payments or a lifetime annuity.
7. Stimulate micro-insurance and micropensions for the poor
As an extension of the microfinance movement, micropensions are a combination of micro-insurance and
microsavings products which have retirement income as their primary objective. They target poorer households, and the amounts contributed may be very small.
Optimize capital allocation
8. Enhance pension fund performance
Pension fund performance is one of the key drivers of retirement benefits in capital-funded pension systems.
It can be enhanced by measures to optimize the design of investment strategies and improve the quality of
pension funds’ governance and administrative efficiency.
Improve efficiency and cost effectiveness
9. Realign incentives of healthcare suppliers
Better health in old age is compromised by waste and inefficiency in healthcare systems that reward doctors
and hospitals for services provided rather than health outcomes achieved. Pay-for-performance measures
can improve efficiency by realigning incentives of healthcare providers.
10. Ensure that cross-border healthcare delivery benefits all stakeholders
Cross-border healthcare delivery includes patients travelling overseas for treatment and patients interacting
electronically with a healthcare provider in another country. It has the potential to be developed in ways that
can benefit patients and countries of all income levels.
Enhance risk management and risk sharing
11. Promote annuities markets and instruments to hedge longevity risk
Longevity risk is the uncertainty surrounding future improvements in mortality and life expectancy. Annuities
protect individuals against this risk. The functioning of annuity markets can be improved by further developing
longevity indexes and issuing longevity-indexed bonds.
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