Pension Fund, Provident Fund and Social Security System in Thailand

By
Niwat Kanjanaphoomin
Government Pension Fund

summarized by azie

The purpose of this report is to review the challenge for Thai retirement system of government to plays a key role in laying out a master plan on pension system to ensure adequate safety net for its citizen because the world is aging will result of two long-term trends: falling fertility rates and rising life expectancy. Over the next few decades, it will restructure the economy. Thus, all governments everywhere will sooner or later have to consider pension reform is the high priority agenda in their countries because it will put enormous pressure on government budgets and national economies.
This paper also outlines the demographic transformation in Thailand which will restructure the Thai economy because the population annual growth has dropped, life expectancy for Thai has rose rapidly, Old Dependency Ratio, and Unemployment. The first pension system in Thailand was founded for the public sector with the enactment of the Pension Act in 1902 and now Thailand currently has a few system covering different sectors of employment. The Thai pension system can be categorized into two sectors; public and private sectors. Within both sectors there are some groups of workers that are not covered by any mandatory pension system.
The multi-Pillar as defined by the World Bank has its merit as the three pillars form an integrated pension system needed to provide individuals with adequate income after retirement. Although certain Pillars have already been in existence in Thailand, they are not extensive enough to cover the majority of the population. There is still a room for
improvement in terms of coverage, sustainability, and proper balance among sectors.
It is a positive sign that the government’s efforts are now being further pursued for pension reform by establishing mandatory provident fund. As soon as the study is completed, it is the government who must decide how and when the program is to be implemented. It is quite natural to see some resistance from parties involved since pension programs usually require trade-off between current costs and future benefits. The government may have to sacrifice some current tax revenues to induce incentives for program participation.
However, these foregone current incomes will be more than justified by less future obligations. The more each individual saves, the more self-reliance he or she would become upon reaching retirement age, and thus the less burden on the government’s future budget. These, in turn, will benefit the society as a whole.

Pension Reforms toward an Aging Society

by azie

The function of this paper is to explore the possibility of an age-free active society in connection with pension reform. An aging population is a common phenomenon among the world's advanced countries. Among the problems an aging population poses, the financing of public pensions is one of the most difficult with which to manage.
In the process, it will examine the inherent influences of pension schemes that could pose obstacles to promoting the employment of older people. The pension scheme and employment situation of older people are closely related. The public pension system to have an effect on retirement inducement influences the employment situation of older people.
This paper also discuss about the impact of public pension on the labor supply of older people. Public pension benefits act to reduce the labor supply of pension-eligible older people. There are two ways that public pension schemes lead to a reduction in labor supply. One is the income effect. Pension-eligible older people are able to retire upon their pension benefit, which they receive as no earned income. The other is the effect of the earnings test of public pension schemes. Under it, pension benefits may be reduced or stopped according to the level of earnings by pension-eligible people who continue to work and earn income. Because the possibility of working in the same occupation correlates to mandatory retirement experience and there is high correlation between public pension eligibility and mandatory retirement experience, the observation sample is divided between those with mandatory retirement experience and those without it. In both cases, workers who receive public pension benefits have a statistically lower possibility of being in the same occupation as they were at age 55. This result means that pension eligible workers in their 60s have a lower possibility of being in a workplace where their abilities are fully utilized.
From the above discussion, we can conclude that it is useful to make policy proposals on pension reform in regard to establishing an "age-free active society. This paper in such a way does not discourage older people from continuing to work." Because public pensions affect income in a way that induces retirement, it is important to raise the pension eligibility age so as to avoid the effect of discouraging continued work.

Extra 30 days off will affect pension payment, civil servants told

summarized by siti noor azzean saayon

If the Selangor government wants to give an extra 30 days of maternity leave to its female employees, then it must be unpaid leave, said Public Services Department director Tan Sri Ismail Adam.
But unpaid leave will ultimately affect the days of service calculated for pension payment when they retire. This means they lose 30 days. Pension was paid by the Federal Government.
Selangor civil servants should keep this in mind when applying for the extra leave. The state government could not give 90 days of paid maternity leave because it would be against circulars already issued by the Federal Government.
Under a circular issued in 1998 by the Federal Government, only 60-day paid maternity leave would be given to female civil servants. Under another circular issued in 2007, female civil servants can take up to five years of unpaid leave to take care of their children.
Selangor Menteri Besar Tan Sri Khalid Ibrahim said the state had approved the 90-day maternity leave for female civil servants effective Jan 1.
He also said fathers would receive an extra week of paternity leave from seven to 14 days and female civil servants whose husbands had died would get a month’s leave instead of three days of emergency leave.
Ismail said the state government could not introduce legislation for its civil servants that was inconsistent with that of the Federal Government. This is because matters of pensions, terms of service and rewards for civil servants come under a scheduled list in the Federal Constitution, even if they work with the state’s agencies

Why Malaysians today does not have enough money for retirement??

Summarized by : SITI KHATIJAH BINTI JAMIL

Everyone should take into considerations about their retirement planning today because certain life decisions that we make now, decisions that we make today will definitely affect our situation at old age or retirement phase. As we can see today, for some people their retirement is just not enough to sustain them. Of course bad or no planning could be one of the primary factors as well.
The problem of not having enough money during retirement phase arises as result of many factors. One of them is longevity. People are living longer with the life expectancy about 70 to 85 years. Means that, after retirement people are still having more than 20 years to support their lives. Hence, as a result do not start early for their retirement, they are going to find themselves in a spot after they turn to 55. Then, facing a retirement is a challenge to them.
Marrying late also resulted people do not have sufficient money during their retirement age. For example if a person has a kid at the age of 35 and retires at 55, he still need to support for his children at 20 that may still at the university or college and his education require financing. Thus, parents are willing to give up “everything”, including their own retirement fund for the kids and leave them in a vulnerable position in their old age, unless of course their children provide for them after that.
As people grow older, they might runs into some health problem. It will be more painful as they do not have insurance policy to cover for the medical expenses. This result them to use a portion from their retirement fund (which already not enough for their retirement) to pay for the medical expenses. And people should realize that medical expenses are tending to be increase from year to year.
Individual lifestyles also contribute to insufficient retirement fund during the old age. Purchasing big assets like property or a house late in life as the danger is that once they have retired they may not be able to meet the installment payment on it. It is suggested for us to start winding down and not committing to high expenses to buy big thing once you are in late 40’s unless you have plan it well.
Inflation also affects the retirement fund. The RM 1000 at the 10 years ago does not same as RM 1000 when you are retired. Inflation has result the cost of living increase from year to year. For the retirees, this result those to spend more to support their cost of living indirectly result their retirement fund insufficient throughout the retirement phase.
Insufficient retirement benefits also arise as people are not saving or building their retirement nest. This could be seen as a major factor as people only depending to their retirement benefit to support their retirement phase. Therefore, people should motivate themselves to start saving during the early ages and they can enjoy the magic of the compounding effect during their retirement.

EPF, ADVANTAGES & DISADVANTAGES

POSTED BY ANAS FATHUL ARIFFIN

Employees Provident Fund (EPF) is the only provident fund in Malaysia that is provided mainly by a contributory scheme catering for private sector employees as well as civil servants. This scheme is compulsory for all private sector employees above the age of 16 including foreign worker. At the beginning, the objective of EPF is to provide financial security for workers in their old age. Later, it provides additional coverage likes withdrawal for education, medical and down payment for the first house. Basically, EPF has two accounts which is Account 1 and Account 2. 70% of their contribution will keep in Account 1 while the rest are placed in another account. The retirement age for private sector in Malaysia is 55. So, when the contributors reach this age, they are allowed to withdraw all their money in that account. In order to provide flexibility service, retires have three option to withdraw their money. First is lump sum. Second is periodic payment and the last one is withdraw one portion as lump sum and the rest as monthly instalments.
There are several advantages of EPF. First, EPF is requires to pay a minimum dividend rate of 2.5% per annum to contributor. Therefore, contributors are confirmed will get the minimum return of 2.5% annually. Besides that, it gives tax benefit. Two tax benefits are available to the contributor. First, a tax deduction is allowed for EPF contributions. Second, since income earned by the EPF is exempted from tax, dividends paid out to contributors are also tax- free. Therefore, no wonder that our ‘king of gamble’, Tan Sri Lim Goh Tong is keeping his money about RM76 million in EPF.
Everything in the world has pro and contra. So the advantage is EPF unable to provide adequate old age protection on account. This is because of its contributors are low-income earners. Whatever earnings they set aside with the Fund will be inadequate, given increasing life expectancy, rising costs of living and erosion of family support. Besides that, the return or dividend given by EPF is low compare to other financial institution. This problem is aggravated by erosion of inflation rate. For example in 2007, the dividend announce by EPF was 5% while the inflation rate was 3%. Therefore, the real dividend rate was only 2%. This amount is low compared to other government controlled fund such as Tabung Haji and Permodalan Nasional Berhad (PNB). Besides that, the pre-retirement eroded the old age protectation.

Social Security for divorcees

Summarized by zainal

Assalammualaikum…here(this blog) as we can see all of my friend is explained about Pension,Socso ,retirement benefit and so on. After read all the journal about pension, I’ve found a quite interesting topic that’s “ What Social Security benefits for divorcees? ” I’m not yet married, but those who at the outside are married, they must know these because usually the widows and widowers suffered from the divorced especially causes by financial.
Social Security provides divorced spouses benefits just like they do current spouses -- if they meet the right requirements. Here's what you should know.
Divorce rules
A divorced spouse can collect a Social Security retirement benefit on the work record of their ex-husband (or ex-wife) if they are at least age 62 and were married for at least 10 years, are unmarried now and are not eligible for a higher benefit based on their own or someone else's Social Security record.In order to collect, your ex-spouse must also be at least 62 and eligible for Social Security benefits, but they don't have to be receiving them in order for you to collect divorced spouse's benefits.Even if your ex is remarried, it won't affect your right to divorcee benefits, nor will it affect your ex's retirement benefits or his or her current spouse's benefits. In fact, the Social Security Administration (SSA) doesn't contact ex-spouses, so they won't even know if you're receiving benefits on their record.
Benefit amount
A divorced spouse can receive up to 50 percent of their ex's full Social Security benefit, or less if they take benefits before their full-retirement age -- which is between ages 65 and 67, depending on the year you were born.Keep in mind, though, if you qualify for benefits based on your own work history, you'll receive the larger of the two benefits. You cannot receive benefits on both your own record and your ex's work record.
Remarrying
Since 75 percent of U.S. divorcees get married again, it's important to note that remarrying makes you ineligible for divorced spouse's benefits unless the later marriage ends. And for those who have been married (and divorced) twice, with both marriages lasting more than 10 years, you can collect using the ex-spouse with the larger Social Security benefit.
Divorced survivor
If your ex-spouse dies, and you were married for 10 or more years, you become eligible for divorced "survivor benefits," which is worth up to 100 percent of what your ex-spouse was due.Survivor's benefits are available to divorced spouses as early as age 60, or age 50 if you're disabled. But be aware that you cannot get survivor's benefits if you remarry before age 60 unless the marriage ends.
Eventhough this paper from US Washington I hope after read this, it will give us some ideas and inspiration if it’s happen to us what we should do. Thanks guys..

Issues Related to the Governance of the Employees Provident Fund

Summarized by Noradilla Hamezah

It is now generally accepted that the activities of the EPF should be geared to further the interests of contributors and not to promote “development”. It is also accepted that there should be no disparity in the treatment of contributors. The EPF’s regulator and fiduciaries were not as clear of its goal even as recently as the late 1980s.

There has always been a “conflict of interest” between the Ministry of Finance (MOF) as
the EPF’s regulator, and the government, as the biggest borrower from the EPF.There is a conflict of interest to the extent that government spending benefits all Malaysians but only private sector employees are mandated by law to contribute to the EPF’s pool of “forced” savings.

As the Malaysian Government Securities (MGS) issues could only be used to finance development, and not operating expenditure, and since the government has generally been responsible in its financing and spending decisions, the safety of the EPF’s investments in MGS was seldom in question. However, the captive demand for MGS by the EPF and other financial institutions have led, from time to time, to artificially low yields for MGS and hence to lower returns for the EPF. With the shortage of MGS, the MOF has been prepared to grant a waiver to the EPF from the requirement that 70% of its funds be invested in MGS. But the law has not been changed and such waivers have been given on an annual basis. There have been periods when yields on new issues of MGS were significantly below equivalent corporate bond yields and of the EPF having or required to invest in such issues nonetheless.

Restrictions on international diversification, the bias towards investments in domestic assets, and the propensity for doing businesses with domestically controlled companies or banks can all increase risk exposures or weaken risk controls. This is a problem in Malaysia to the extent that the government’s development goals constraints the EPF’s investment choices. The new regime of exchange control is likely to increase these biases.

As argued previously, the existing regulations and the under-developed financial markets have prevented the EPF from investing on a portfolio basis. It is thus vulnerable to undesirable external influence on its decision -making powers. Its portfolio is not required to be marked-to-market and its performance is not evaluated with reference to the performance of the market. This can lead to a disparity in the treatment between contributors and to non-optimal investments (and underperformance).

Given the success of Singapore’s Housing Development Board (HDB) and its Central Provident Fund in promoting housing development and home ownership, there were calls on the EPF, (from time to time), to create a Malaysian HDB either directly, or through its subsidiary, MBSB. Fortunately, both the government and the EPF have not responded to these calls. By not promoting or setting up an HDB-type of organization, the EPF has been able to serve its interest better. It was able to deal with a more competitive industry in housing development.26

It is now in a better position to maximize returns, minimize risks and minimize its vulnerability to undesirable external influence because the funds it plans to allocate to housing are lent to house buyers who are free to buy houses from any developer. By channeling its funds to buying loans that originate from many financial institutions without regard to who the developer is (as is being done by Cagamas Berhad which is a mortgage corporation), or by investing in Cagamas bonds, it is stronger and safer than if it were to engage directly in property development or to only lend for the purchase of houses it has developed. As a pension/provident fund it is right that the EPF remains as a portfolio investor and not as a direct investor in property development activities, as it should betaking portfolio risk, not business risk.

In a provident fund arrangement, the contribution is mandatory and therefore it is akin to a defined contribution plan. However, the investment decision is exercised by the fund but the contributor bears the risk. This is a potentially explosive arrangement. The government has addressed this problem by guaranteeing a minimum return of 2.5% p.a. and by mandating the portfolio in which the funds can be invested. This need not produce an optimal arrangement.

The composition and tenure of the EPF’s Board & Investment Panel can minimize the extent of external influence by government. The greater the number of government appointees or the shorter the tenure of members, the greater the external influence exerted by government. The incidence of such external influence may have declined as the number of independent representatives has increased and tenure has been lengthened (from 2 to 3 years).

A review of the risks, costs and benefits defined contribution and defined benefit pension schemes

Prepared by SITI AYUNI HJ MAT

Defined Benefit

Promise by the employer to provide a Pension based on the employee’s final salary and the number of years pensionable service. Both pension promises and contribution rates can be radically changed any time prior to retirement and/or the scheme closed to new contributions and/or members. In the event of winding-up, members are entitled to the higher of: The Pension Protection Fund guarantee (90 percent of their promised pension entitlement); and, Their share of the net realisable value of the pension fund and any other guarantees or assets pledged by the employer as collateral. Investment choices are the responsibility of the Pension Fund Trustees Employer specific risk plus the Pension fund’s Investment Portfolio Market Risk (β) Highly dependent upon Trustee skills and incentives. Employer -pension fund (trustees, members and tax payers) conflicts of interest. Conflicts between active members (current employees), deferred members (those no longer employees/contributors and pensioners). Requires costly regulation by the Pensions Regulator, insurance via the Pension Protection Fund and diligent trustees to protect member interests.


Defined Contribution

Pension based on the value of accumulated pension savings and the annuity rates prevailing at retirement. The member unambiguously owns the accumulated pension pot bought with their contributions, i.e., they are entitled to receive its full market value upon either retirement or death prior to retirement Wide range of asset classes/active-passive investment choices available for the member to choose from. Investment Portfolio Market Risk (β) Minimal agency issues beyond ensuring that members receive adequate information and choices regarding the investment risks and fee levels associated with their fund choices. Ensuring that the default fund has low costs and high risk diversification.

Effective Pension Plan Governance

written by RAJA NURU SUHADA BINTI RAJA HARUN

The PIAC(Pension Investment Association of Canada) Governance Model
Pension plans are businesses. Pension plans are fiduciary duty to their beneficiaries, pension plan managers have participated in the ongoing examination of recommended structure for a pension plan’s own governance. The Pension Investment Association of Canada plans. Accountability of those involved in the governance of pension plans. As with the Ernst & Young model, the PIAC Pension Governance Process model identifies key issues and essential features that will be common for all pension plans, large or small, defined allow pension funds to fulfill the promise of retirement security to their beneficiaries.

The Pension Promise
The pension promise embedded in the plan provisions is the starting point for providing proper pension plan governance. Proper pension plan governance is a critical feature of delivering on the pension promise.
1) the pension entitlements
2) the funding policy chosen, and
3) the provisions for management oversight.
The pension promise must specifically acknowledge who bears the risks of inadequate investment. Pension plans are complex businesses created for the benefit of pension plan stakeholders including current too must stewards of a pension plan recognize who the stakeholders in the plan are and what loyalties. An effective pension promise is required to establish proper pension governance. The governance process, for any organization, embodies three discrete features:
1) Board/ Trustee selection and organization,
2) defining how power is shared between the Board/Trustees and management,
3) the overall governance process itself.
Pension Trustees are expected to oversee the business and affairs of the plan but are not expected to manage the plan liabilities of the total pension plan.
Pension Trustees competent in many other management areas sometimes feel, incorrectly, no studied as a steward of pension plans, prudence demands that a Trustee should understand financial markets, risk management and actuarial principles.

Governance Principles
Trustee Independence: A number of the TSE guidelines speak to board independence from management, fiduciary duty.
Management Duties
While some large defined benefit plans are constituted as independent entities with management reporting to delivery of the pension promise requires an integrated management solution. Managed as a single business in the case of defined benefit plans. For hybrid plans, both sets of plan business risks power to management. Fiduciary Duty
The Trustees have a duty to interpret the plan terms fairly and pay the benefits promised. Clearly the plan member is vulnerable to the fiduciary and this unequal relationship defines the need for duty, care and prudence. The terms of the plan design are frequently set unilaterally by the plan sponsor, but they must be interpreted impartially, fairly, and in good faith when paying the benefit promised.



Fiduciary Obligations
•ensuring the completeness of plan terms
•ensuring actuarial valuations are performed for defined benefit plans
•ensuring funds are prudently invested

The PIAC Pension Governance Process
1- Trustee Selection and Organization
2 - Trustee and Management Power Sharing
3 - Trustee Monitoring of Management Performance
4 - Assessing Plan Governance Performance

IMPORTANCE OF EARLY RETIREMENT PLANNING

written by NOR RAFIDAH BINTI ROSLI

Retirement is something that will happen long in the future. At the age of 60 or 65 we will stop going to work and start living our free life. I am sure all of us would want an early retirement with a nice house, fancy car and the better life. But very few of us take the preparation of facing life after retirement seriously.
Retirement is a big deal for us but most people only remember to plan for it when they are getting close to their retirement age. Managing money would be more critical during retirement, when your income comes from your savings rather than from wages and earnings. Because your source of income is limited during retirement, you need to ensure that it lasts through your retirement years. This means you should start planning and saving for the retirement at a young age to avoid any problem occurring in the future.
Here I would like to explain why you should start planning for retirement at a young age. The first one is related to life expectancy. Life expectancy is likely to increase as a result of advance in technology. In other words, peoples are spending a relatively longer period of their lives during retirement and may outlive their financial capacities to maintain themselves and their dependents. Hence, planning for retirement at the young age is important to avoid from insufficient income during retirement.
Second is for medical emergencies. Older people are in poorer health as compares to the general population. With multiple health problems, they need to seek medical services that sometimes cost a lot amount of money. Failure here could lead them to sell their assets in order to meet such expenses. Therefore, you must start to plan for retirement now to make sure that you have enough money to support for medical expenses during retirement.
The last one is inflation. Increase in consumer prices can also cause considerable financial hardship to the old age. Therefore, in planning for retirement, you should also consider inflation factor. As you need to worry about it you need to account for it as well.
In short, planning for your retirement is an on-going process. It requires discipline, self-study and time. The earlier you start your old age planning, the better it is as you can minimize problems mentioned earlier during your retirement.

Portability of Pension Benefits among Jobs

By Foster Ann C.
Summarized by Yim

A worker's ability to maintain and transfer accumulated pension benefits when changing jobs is generally less of a problem in defined contribution plans than in defined benefit plans. An account is established in defined contribution plans for each participating employee. The employer and in some cases, the employee, make fixed contributions to the account. Benefits depend on contributed amounts and investment earnings. With comparable contributions and rates of return, a worker who switches jobs and leaves the funds in the plan of each organization could have the same benefits upon retirement as a worker with an identical salary history who worked for only one employer. In contrast, defined benefit plans use predetermined formulas to calculate retirement benefits. Benefits generally are based on salary and years of service with the employer sponsoring the plan. Portability provisions are not commonly found in single employer defined benefit pension plans. Portability provision in defined benefit plans generally cover assets, credit service or both. Portability of assets allows workers to withdraw accumulated pension benefits or transfer them to another retirement arrangement. Portability of credited service allows year of services with a previous employer to be included when determining pension benefits from a subsequent employer.

zihan's interpretation

prepared by NORZIHAN BINTI KAMIS

Due to the increasing the population of elderly in Malaysia, government has provided some programs to support the older people in Malaysia. In Malaysia, formal social protection provided by the government includes social security programs and pension schemes. The implementation of the Employee Provident Fund (EPF), since its establishment in 1951, has been fairly successful. However, the fund is not without limitations. While the fund aims to provide income support for retired workers, it covers only a small proportion of the older population. Other than that, the government has provided elderly-friendly facilities that include housing, transportation, recreation facilities, appropriate restrooms, and lifts and ramps in public areas. But, treatment needs of the elderly group are high. Many of them are edentulous, however a growing number are retaining their natural dentition into old age. Many of these new elderly are functionally-independent, healthy, active and educated. They are more critical and are more demanding of a wider range of services.

Peoples could not depend on the Government programs only. The most important thing is the members of the family to take care for their parents. Typical cultural in Malaysia, have a long tradition of filial piety. Therefore, providing care and financial support to the elderly parents are responsible of the family. However, family care and support to the elderly parents in Malaysia now are not good as before. This is because of the several factors. The process of the modernization and the effect of the urbanization and the migration for work have created a situation where a young adult live apart. Thus, this will affect their ability to take care for their elderly parents. In addition, the declining family size has reduced the number of children in the family to share both social and financial support to their parents.

PENSION VS KWSP

Prepared By:
INTAN NOORZURIANTY BT ZOLKEFLI

In my opinions, pension has more advantages than KWSP. This is because:

1. Guaranteed future benefits. With pension scheme, we will be guaranteed about the amount that we will be received when we retired at age 56 later. The amount is about half of the final service salary. On God’s will, it will be enough to continue our living before we return to The Almighty Creator.

2. Monthly pension will not only be enjoyed by Government Servants that choose the scheme, but the derivative pension benefit will be only enjoyed by the respected family members.

3. The service reward is also big. Plus, we start our service with Government since us young. This service reward is depends on how long the service and the final salary. So, the longer service with Government means the amount will be bigger.

4. No salary will be cut every month. At early age we need money to buy a house, car and other assets and the cost to raise the children. So, if the salary is cut every month for 11% or 12%, what’s left to be spent?

5. Besides, there are other benefit such as medical benefit from government hospital and death benefit. Other than that, pension officer will be received a pension statement just like any other pension statement received by other government servants.

However, government servants that choose KWSP also have the benefit. They are free to work with any employers. For example, if they are getting a better chance at other places, such as private sector or any other departments, they can resign and still enjoy their total contribution benefit.

In conclusion, both schemes have own benefits itself.

Cash Transfer For Older People Reduce Poverty and Inequality

Prepared by: norohida binti mohamad ghazali

This paper discusses the poverty and inequality reduction properties of non contributory pension in Brazil, South Africa and Bangladesh. It examines the development of non contributory pension programmes in the countries involved, and the institutional factors behind their extension and current sustainability. It also examines the incidence of non-contributory pension programmes on poverty and inequality.

a) The main findings from the paper of the development of non-contributory pension
programmes overtime, as institutions for poverty and inequality reduction are:

- Non contributory pension programmes in Brazil and South Africa developed against adverse institutional environments: racially discriminatory social policy in South Africa and segmented social in Brazil.
- The development of non contributory pension programmes reflect widely held concerns with old age poverty, and are a core foundation of solidarity institutions.
- Instrumental factors combined with natural reservoirs of political support and social contract renewals are keys to explaining the expansion of non contributory pension programmes in the 1990s.

b) The main finding from paper as the available evidence on the impact of these programmes on poverty and inequality are:

- The contribution of these programmes to reducing inequality is under researched, but there is no evidence that the programmes increase inequality.
- Evaluation of the well being of older people with a range of well being indicators suggest that non contributory pension programmes can support and promote functioning and capabilities among poorer and vulnerable groups.
- Non contributory pension programmes have significant poverty reduction properties, and these are stronger for poverty gap measures of poverty than poverty incidence. Non contributory pension programmes reduce the probability of poverty among those living in household with beneficiaries.

my point of view

by Mohd Firdaus bin Muhamad

Assalamualaikum..hye guys..as you can see down here,,,some of my classmates already gave their summary,,,opinion,,,and articles about what they think that related to pension scheme or retirement funds...now...i want to talk about SOCSO...as we know,,,SOCSO (Social Security Organization) or PERKESO (Malay term) is important to the employees that have the income below RM3000...Why this 'SOCSO' is important from them???that's because we are expose to the uncertainty risk while working..some of us works with the machine..some of them need to travel a lot as their job...accident can occurs anytime,,,anywhere and unpredictable...so if we registered under socso scheme,,,at least we got protection from them in term of money or coverage such as medical bills,,,compensation if we had a permanent disability...so during the period that we cannot do any job(because of the injury) at least we still have an income even though is not much as our monthly salary...well better get something than nothing right???so guys..it shows that socso is very important because not all of us are afford to buy the insurance..we need to think out of the box now...people always says that prevent is better than cure..but when accident had happened nothing that we can do to prevent after that..just a money can make us find the way to cure the injuries..thanks guys..until we meet again..bye..(sorry if my composition is bad..still process of learning,,will improve from time to time)

A Great Time to Increase Your Retirement in Your Thirties

by idayu..

The decade following your thirtieth birthday is full of excitement and change. Definitely, you’re an adult. You may even be acting like one with a spouse, a pet, and, perhaps a child of your own. While high school seems like a long time ago, retirement feels even further away. But retirement planning in your thirties is an important goal.
Along with the potential arrival of your growing family is, in all likelihood, a growing household budget. That’s normal. After all, the amount you spent on groceries to feed a family of two isn’t likely to work once your children discover solids. The size of your home is likely bigger than it was prior to children and, therefore, so is your mortgage and real estate taxes. All of this is to be predictable.
On the other hand, you’re probably making more money than you were as a twenty-something. You’ll also get some of the cost efficiencies of living with another adult, should you choose to do so. Your increasing family might also save you some money at tax time. Taken on the whole, all these changes may mean it’s just as challenging to save in your thirties as you found it to be during your twenties.
If you’ve been hoping that saving would be easier by now, yet haven’t begun to save for retirement by your thirties, time is now critical. Every year you delay now may affect not only when you’re able to retire, but also what your retirement will look like. If you haven’t yet participated, now is the time to begin.
Can you make your contribution earlier in the year to take maximum advantage of the benefits? If you’ve been participating in your plan, ensure that you’re aware of your schedule before you leave your current job. Leaving without taking your employer matching contribution could mean the forfeiture of thousands of retirement planning money.

Given you’re twenty or more years until retirement, you’ve got a very long-term time horizon for investing. This means that bulk of your retirement money should be invested in stocks (or mutual funds).In spite of the increased risk that is associated with stock market investing, stocks offer long term potential for your money. With over twenty years to ride out the expected fluctuations, you can benefit from the higher expected returns. Keeping all your money in the bank leaves you with another risk, one that the purchasing power of your money will not keep up with inflation, let alone grow enough for you to retire comfortably.

Social Security: Concept And Reality With Reference To Malaysia

by Noorsafariza Aminaldin

The objective of social security is to preserving the quality of life of the individual and his or her dependents as a result of old age and contingencies such as injuries, occupational disease, and invalidity, the need of the health and medical attention and death. Currently social security scheme are based on the social insurance, general or ear-marked taxes and social assistances. The challenge for the social security is financial sustainability and social cohesion support by politic will. In response to financial sustainability challenge, current modalities have centered on four main approaches:
a) Funding through general tax revenue or ear- marked taxes
b) Social pooling through social insurance, that is, mandatory contributions from the target group(s)
c) Private insurance schemes and pension plans which have a commercial element; and
d) Social assistances programs financed by the government budget
Malaysia has a mixed system of social security comprising state and private scheme, statutory labour law’s obligatory requirement on the part of employers as well as state social assistance programs. Currently, Malaysia have four social security schemes administered by government agencies, that is, the Employment Injury and Invalidity Pension Schemes under the Social Security Act, 1969 and mainly retirement scheme under the Employees Provident Fund Act, 1951 and the Workmen’s Compensation Act, 1952 which provides coverage for foreign workers in Malaysia under an insurance scheme paid by employers.
The Social Security Organization ( SOCSO), established under the Employee’s Social Security Act 1969, ensure timely and adequate assistance to workers who have suffered injury, occupational diseases, invalidity or death as covered by the provisions of the Act. SOCSO offers two social insurance protection schemes, namely, the Employment Injury Insurance Scheme and the Invalidity Pension Scheme. The Employment Injury Insurance scheme provides an employee with protection for industrial accidents, occupational diseases and commuting accidents. Benefits provided are Medical Benefit, Temporary Disablement Benefit, Permanent Disablement Benefit, Constant Attendance Allowance, Dependant’s Benefit, Funeral Benefit, Rehabilitation Benefit and Education Benefit. SOCSO’s Invalidity Pension Scheme provides an employee with 24-hour coverage in the event of invalidity or death resulting from whatever cause. Benefits provided are Invalidity Pension, Invalidity Grant, Constant Attendance Allowance, Survivors Pension, Funeral Benefit, Rehabilitation Benefit and Education Benefit.
Since 1st April 1993, foreign workers who are not permanent residents of Malaysia are covered under the Workmen’s Compensation Act 1952. This Act aims to assist workmen who had lost their capacity or ability to work due to injury suffered in the course of their employment. Under this Act, his/her employer compensates the injured workman or his/her dependants and the employer, in turn is required to insure for him/herself in respect for such liability. Since 1st November 1996, the Foreign Workers Compensation Scheme was established under the Workmen’s Compensation Act 1952. Under this scheme, employers have to insure their foreign workers. If employers fail to provide insurance coverage for each worker, they can be fined or jailed or both. The benefits under the scheme include 24-hour daily coverage, ex-gratia payment for injuries leading to death, a compensation payment if a worker dies or if he/she is permanently disabled and a repatriation cost in the event of death or permanent disablement.
The Employees Provident Fund (EPF) Act, 1951 provides a compulsory savings scheme that seeks to protect the rights of employees to retirement savings and to enhance the value of their savings for post-employment financial security and well-being. The statutory rate of contribution for employer is 12 percent of the employee’s monthly wage while employee’s contribution is 9 percent of monthly pay. The EPF also provides for withdrawal schemes for medical, housing and trust funds even prior to retirement age to cater to the present-day needs of society. In addition, the EPF provides Physical or Mental Incapacitation Withdrawal Scheme for members who are disabled from continuing to work. Under this scheme, they can take out all their savings immediately. Upon the death of a member who was still contributing to the Fund, his savings are automatically given to whomever the member had nominated as his beneficiary. If there is no beneficiary, the next-of kin will receive the money. As part of its social responsibility, the EPF also pays death and disability benefits. The EPF scheme was originally conceived as a forced savings scheme for old age with monthly contributions from the worker and his/her employer. As a result of evolving social pressures, contributors are now allowed to withdraw their savings for specific purposes.
The extant coverage of the social security schemes, labour legislations and social assistance programs in Malaysia has obvious gaps. Generally, the formal schemes cover contributors only up to the age of 55 years old. Thus, the aged will have to depend on either their savings or social assistance programs, both for daily subsistence or medical expenses. There are no formal family or child assistance social security schemes. Other than the payment of termination benefits required by the labour laws, there is no unemployment insurance. Minimum wage exists only for workers in certain occupations based on the recommendations of wage councils established under the Wages Councils Act, 1947 (Malaysia, 1947). In addition, formal social security schemes have largely excluded the self-employed group. Where, the informal sector forms a substantial economic sector, it may be concluded that a substantial section of the population encounters difficulties in maintaining their standard of living in times of economic distress. Among the critical pressures on the population’s standard of living is the provision of health care.
Currently, the health care system is largely based on public funding of services provided by public health institutions. This has placed a burden on the government budget. Extension of the coverage for social security is critical in ensuring social inclusion. Public issues or problems require public solutions. Social security is a matter in the public domain and hence requires not only involvement of the traditional tripartite parties, that is, employees, employers and the government but also contributions from civil society as a whole. This is because NGOs (non-government organizations) have augmented government institutions in the provision of social services. Therefore, there is a need to improve coordination among the various service providers in order to avoid duplication and misallocation of scarce resources.

Financial Preparation Before Retirement

summarized by zakiahrana

You are never too young or too old to prepare for your retirement. The earlier is better, but better late than never. There are several basics of retirement planning that you should aware which are: How much savings or assets do you have? What is your monthly income? What is the percentage of your income contributed to EPF or other retirement plans? What rate of return do you want on your investments? How many years do you have until retirement to earn your money? After analyzing your current assets and liabilities, estimates your spending needs and adjust them for inflation, then decide when you want to retire- at age 45, 55, 60, 65?
Nonetheless, there are four steps that you should follows in order to prepare yourself in term of financial before retired. The first step is to set your financial needs. You should analyze your financial needs after the retirement. After retired, some of the expenses such as clothing expenses, transportation/travel costs, foods and other may not exist anymore. However, the other expenses such as medical cost, insurance and other expenses will be increase. Generally, the pensioner financial needs are 75% to 80% from their financial needs while working. Based on this, you have to consider the unique situation such as child education cost and housing loan to estimate the monthly expenses. Other than the fixed expenses, you should consider for the lifestyle changes. If you want to travel, go for holiday or you have any other costly hobbies, you should consider these costs while doing this retirement plan.
The second step is to make the evaluation of the financial status. After you have set your financial needs, you have to evaluate your current financial situation and make a plan for the retirement needs. Here, you should give an attention to the investment portfolio which includes additional savings and your income. Also, put in the list all of the financial commitment that you need to settle down. If you are still working, estimates the total amount of EPF or pension you will receive after retired.
The third step is to calculate the amount needed. After all the information above collected, you can get an advice from the financial planner or any web sites that provide an articles about the retirement preparation which you can use in order to prepared yourself before retired. It is important to evaluate whether what you have now (money) is adequate for your retirement needs later. If the answer is NO, at least, you can calculate how much money is needed. As an example, Abu’s yearly financial needs are RM50, 000 (around RM4, 000 per month). He estimates that his retirement savings will give 7% interest every year. So that, Abu’s will need at least RM714, 286(RM50, 000/0.07) in his savings to fulfill his retirement expenses.
The last stage is to be discipline to plan the financial. In order to maintain your buying power, make sure it expands at least at the same rate with the inflation to balance the negative inflation. This based on assumption that you want to maintain the retirement savings for your whole life and keep the principal amount for your children. However, if you are not care to spend the retirement money, the total amount needed must be much lower. But, at the same time, you must be careful to make the planning. You must avoid from making an unimportant withdrawal and make sure it is adequate for your whole life after retired.

The Effects of Offering Health Plan Choice within Employment-Based Purchasing Groups

summarized by Nasrul

This paper finds that the availability of choice is associated with greater enrollment by employees in employer-sponsored plans but less generous coverage on average among covered workers. Heterogeneity in preferences across employees may arise from variation in health risk as well as variation along other dimensions, such as preferences for a particular style of care or set of providers. If health risk is the primary factor, health plan choice can be viewed as a mechanism to establish a separating equilibrium among employees, with the resulting risk segmentation extending coverage to previously uninsured, low-risk workers. If selection of workers across plans relates primarily to preferences for plans or providers, then adverse selection is not at play. The availability of choice within a firm stimulates competition that reduces insurer profit margins or other components of premiums that this analysis could not observe. Although choice is associated with lower average plan premiums, the effect appears to be driven primarily by a reduction in the average generosity of the coverage. The general concern is that, because choice is not randomly assigned to firms, those that choose to offer multiple plans may differ from those that do not in unobservable ways that are correlated with the outcomes I examined. For example, employers may offer more plans in response to low enrollment or to compensate for plan stinginess. A potential way to address this issue would be to identify an instrument that affects whether an employer offers choice, but is not related to these unobservable firm characteristics. The welfare implications of reducing rates of coverage within a firm depend both on the value workers place on coverage and the extent to which those who decline coverage from their own employer access insurance through another source such as a public program or an alternative employer. The net effect for individual workers also depends upon whether they were compensated for reductions in the generosity of health benefits with corresponding increases in cash wages or other fringe benefits. The results of the paper are consistent with employers offering a choice of health plans in response to variation among employees in their preferences for health insurance.

Azra's intuitions

NUR AZRA ABDUL GHANI

Nowadays, the word “actuary” is becoming familiar among the public unlike few decades ago. This is due to the significant roles of actuaries in any organization. In addition, there is also a sudden emergence of educational institutions that provide actuary as a field of study.

As actuary students, I believe many of us here have encountered the situation, where we need to clarify to those who are unfamiliar of actuary, when we told them we are doing a degree in actuary. How did you answer that? Did you said, “It has something to do with insurance”, or “It’s more on mathematics and statistics”? Well, if you did, you are pretty close. According to the Society of Actuary, an actuary is a business professional who analyzes the financial consequences of risk. Actuaries use mathematics, statistics and financial theory to study uncertain future events, especially those of concern to insurance and pension programs.

So, since we are studying Pension Scheme subject this semester, I am going to explain briefly, the actuary roles in pension programs. It is based on a paper by Grant Boyken titled “Actuarially Speaking: A Plain Language Summary of Actuarial Methods and Practices for Public Employee Pension and Other Post-Employment Benefits”.

A pension actuary analyze probabilities related to the demographic of the members in a pension plan and economic factors that may affect the value of benefits or the value of a pension plan’s trust. The former include the likelihood of retirement, disability and death, while the latter include the investment return rate, inflation rate and salary increment rate.

Actuary determines the value of a pension benefits and came up with the strategies for funding them. In general, actuary calculates how much employer should contribute to ensure that the required fund for an employee’s retirement is sufficient.

Before creating a pension plan, an actuarial valuation is needed. It can be considered as a financial check-up for the plan. It measures how much contribution from employers is needed to maintain appropriate benefit funding progress. It also measures how to allocate assets and liabilities to determine funding progress.

The result of an actuarial valuation is the contribution requirements and funding progress, which depends on various elements. These elements include information about the plan, demographic assumptions and economic assumptions.

Finally, actuary needs to prepare an actuarial report, which consists of key features of the pension plan such as benefit formulas and contribution rates. The body of the report contains member data, which shows the active, retired and inactive members. Lastly, it will include summaries of plan assets and related calculations.

Having said all the technical part of roles of actuaries in pension program, I now moved from the seriousness and conclude the general role of an actuary as described below:
Imagine an actuary is a pilot, conducting an aeroplane in the sky. The journey is based on the pilot’s knowledge and present conditions. Of course, the pilot is provided with all the current situation of the weather and plans his journey well. But unforeseen circumstances, such as bad weather, may occur and the pilot may need to rearrange a better strategy to fly due to errors in the previous plan.

Pension risk : Do employees care?

Written by: Vrinda Gupta

Summarize by: Mohd Azizi Amin Nunian

In the UK, company-sponsored pension plans have traditionally filled the gap left by state pension and private saving. Most of the defined benefit (DB) schemes are managed as final salary schemes and many have traditionally invested a large proportion of asset in equities. Increasing longevity of the population in the UK coupled with stock market volatility has made final salary scheme unattractive and risky for employers. The majority of employers have closed down final salary schemes to new entrants. Other employers are diluting risk by encouraging workers to retire later and have increased the age at which the full retirement benefits starts accruing to the employees from 60 to 65 years.

Employees who have a DB pension scheme, them have experienced no changes to their pension rights. Based on Watson Wyatt Pension Risk Indicators database (PRI), the average pension liabilities is high, the deficit on the pension accounts for companies is not as high, with half of the companies having pension deficit well within the range of five per cent of companies market capitalization. The fact that large number of companies has massive pension liabilities when compared with companies capitalization implies that these companies are more likely to default on their obligation to provide for the retirement of their employees. Even companies with a smaller pension-deficit-to-market-capitalization ratio also run a risk of defaulting on their obligations owing to large uncertainties regarding the return on pension assets, future salary increases and pension contributions, as well as general factors such as tax laws.

The dissatisfaction among the employees of firms with large pension liabilities can potentially be explained by a number of factors. It is possible that firm may be having large pension liabilities alongside benefits package that may not compare well with other firms. Or it may be case that employees can perceive that risks attached to the high level of deficits attached to their pension schemes.

As a conclusion, there has been unrest among workers in the UK on pension issues such as closing of DB pension schemes to new entrants, raising the retirement age and reducing benefits. These changes are being put to practice to address costs and risks associated with underfunded DB pension schemes. Employees do seem to care about the level of funding of their benefits with other companies and the industry average. But these do not seem to affect their perception of the management or their confidence in business success and commitment to the firm.