Retirees Should Redirect Small Portion Of Savings Into Higher-Yielding Investments To Enhance Income Security -- SC

 KUALA LUMPUR, March 20 (Bernama) – Retirees should redirect a small portion of their savings into higher-yielding capital market instruments to enhance their income security in their old age rather than holding cash, the Securities Commission (SC) said.

In expressing concern over Malaysia’s ageing population, the SC said they could mobilise their liquid assets or savings in banks or fixed deposits to invest in unit trusts or private retirement schemes (PRS) and, in the process, enhance their retirement adequacy.

“Households have ample savings that could be directed into the capital market,” it said in a special feature on the issues and challenges of ageing to the capital market contained in its Annual Report 2024 released today.

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In 2024, the proportion of Malaysians who had surpassed the age of 65 rose to 7.7 per cent, with updated projections from the Statistics Department indicating the country would transition to an “aged nation” by 2040, with 17.3 per cent of Malaysians being 60 years or older. By 2050, 16.8 per cent of Malaysians would be aged 65 and above.

The report noted that while Malaysians are good at managing money such as budgeting and paying bills on time, their financial knowledge in some other aspect remains limited.

The SC said that the Employees Provident Fund’s (EPF) new tiered savings benchmarks released last December recommended for at least RM390,000 set to take effect in 2028, which better reflects the rising costs of living and retirement needs.

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While the RM390,000 is the basic savings benchmark, the EPF said that the adequate savings benchmark is RM650,000 which would support monthly withdrawals over a 20-year period.

Assuming an annual return of 4.0 per cent on the balance, retirees could begin withdrawing RM2,708 in the first month and reach RM7,389 per month by the 20th year.

Beyond this would be the enhanced savings of RM1.3 million which is twice the adequate savings amount, enabling retirees to start with monthly withdrawals of RM5,417 in the first year, growing to RM14,779 by the 20th year.

The SC also said key gaps from a 2023 survey of adult financial literacy showed that more than half of respondents were unfamiliar with the time value of money, 44 per cent lacked long-term financial goals,and nearly 50 per cent did not understand the concept of risk diversification.

It stressed that addressing low financial literacy is key to securing a stable future especially for those nearing retirement, adding that retiring remisiers or the exit of experienced brokers combined with the rise of robo-advisors could lead to less personalised advice for retail investors.

The SC, in expounding that a proportion of retail savings could be channelled towards the capital market, said that currently, RM886 billion or nearly one-third of Malaysia’s total RM3.2 trillion household financial assets (excluding EPF) is held in bank deposits.

It expressed concern that the ratio of unit trust investments to deposits has been declining, with deposit growth outpacing that of unit trusts, indicating a trend toward preference to hold more cash rather than investing.

Individual deposits include RM569 billion in bank fixed deposits and RM317 billion in bank savings or current accounts.

Although the PRS, a voluntary alternative to EPF’s mandatory contributions, is growing, their net asset under management remains small at RM6.5 billion compared to EPF’s RM867 billion in total active EPF contributions, indicating significant potential for other instruments.

“This illustrates untapped potential for PRS and other market instruments as complementary, voluntary options for retirement planning,” the SC said.

Malaysia’s ageing population presents significant challenges for both individuals and the economy, particularly retirement inadequacy and the concentration of household savings in bank deposits as opposed to investment in the capital market.

Alarmingly, low retirement savings and soaring healthcare costs threaten the financial security of retirees, while the rise of the gig economy complicates access to essential benefits, the SC said.

Expanding the range of investment options for household savings, including capital market avenues alongside boosting financial literacy, could help improve retirement preparedness and support economic growth, the capital market regulator said.

The SC said that by redirecting liquid assets toward higher-yielding investments and educating individuals on financial planning, retirement preparedness could be improved.

As the capital market adapts to changing demographics, it must also recognise shifts in investor behaviour and preferences.

“With proactive measures, innovative financial products, and targeted policies, Malaysia can bolster the financial security of its ageing citizens while ensuring the sustainability of its capital market,” the SC said.

“Perhaps it is timely to relook and address these challenges holistically and work together to create a more resilient financial landscape.”

The SC said that doing so would not only support the elderly but could also improve economic stability by reducing future dependency on government-funded social welfare systems.

Ultimately, enhanced financial resilience benefits both individuals and the broader economy in an increasingly complex economic environment, it said.

-- BERNAMA