Pension reform, capital markets and corporate governance in Malaysia
| Pages | 30-37 |
| DOI | https://doi.org/10.1108/eb025059 |
| Published date | 01 January 2001 |
| Date | 01 January 2001 |
| Author | Mukul G. Asher |
| Subject Matter | Accounting & finance |
Pension reform, capital markets and
corporate governance in Malaysia
Mukul G. Asher
Received (in revised form): 15th November, 2000
Public Policy Programme, National University of Singapore, AS 7, 5, Arts Link, Singapore - 117570;
fax: (65) 778-1020; e-mail: mppasher@nus.edu.sg
Journal of Financial Regulation and Compliance Volume 9 Number 1
Mukul G. Asher is Professor in the Public
Policy Programme at the National
Univer-
sity of Singapore. He was educated In
India and the USA. He has also taught or
researched in Australia, Malaysia and
Sweden. From June 1997 to December
1997 he was a Visiting Professor at the
Fiscal Affairs Department of the Interna-
tional Monetary Fund. He specialises in
public finances of developing countries.
He is regarded as the leading authority on
social security arrangements in Southeast
Asia.
He has authored or edited several
books, published numerous articles in
national and international journals, and
contributed more than 50 chapters to
var-
ious books. He has been a consultant to
the World Bank, International Monetary
Fund, Asian Development Bank, UN-
ESCAP and Oxford Analytica. He has
addressed many academic conferences
and business and professional gatherings.
ABSTRACT
The main retirement benefit
scheme
for private
sector employees in Malaysia is a 50-year-old
mandatory savings scheme administered by the
Employees Provident Fund (EPF). It had
accu-
mulated assets equal to 55 per cent of GDP in
1999; making it one of
the largest
such schemes
in the
world.
Over the past 40 years, it has
earned a real rate of
return
of 3.37 per cent per
annum on its portfolio. The key question is
whether the EPF
can
sustain even this
moderate
rate of
return
in the aftermath of
the
1997 eco-
nomic
crisis
and in the era of globalisation. The
paper argues that this will require reforms in
financial and capital markets, better corporate
governance and modest international diversifica-
tion of the EPF's portfolio. Development of
appropriate annuity products will also be
required to protect members against the longev-
ity
risk.
INTRODUCTION
Malaysia is a rapidly growing economy
with per capita income of US$3,400 in
1999.1 While its social security arrange-
ments are rather complex, a mandatory
savings scheme established in 1951 and
administered by the Employees Provident
Fund (EPF) is the most important compo-
nent.2 The EPF is a statutory body super-
vised by the Ministry of Finance.
The EPF scheme is a defined contribu-
tion (DC) fully funded (FF) scheme.
Therefore, total balances accumulated by
an individual during working years (the
accumulation phase) are, by definition,
equal to the contributions less permitted
pre-retirement withdrawals for housing,
healthcare and other purchases, plus interest
(called dividend in Malaysia) credited to
the individual's account. The accumulated
balances in Malaysia can be withdrawn in a
lump sum, or in the form of an annuity at
the time of retirement to be used during
the decumulation phase.
Journal of Financial Regulation
and Compliance, Vol. 9, No. 1,
2001,
pp. 30-37
© Henry Stewart Publications,
1358-1988
Page 30
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