Private Pension Funds To Boost M'sian Capital Markets, Says OBG

By Yong Soo Heong KUALA LUMPUR, May 17 (Bernama) -- Malaysia's capital markets are in line for a boost as the introduction of private pension funds is expected to create a significant funding inflow that will be directed towards various investment vehicles, says the Oxford Business Group (OBG), a research publishing group specialising in authoritative detailed analysis. This should also help to take some of the pressure off the government's retirement schemes, it said. In early April, the Securities Commission (SC) announced that it had given approval to eight firms to offer private retirement scheme (PRS) services to the public, bringing non-state-backed superannuation funds a step closer. They are AmInvestment Management, American International Assurance, CIMB-Principal Asset Management, Hwang Investment Management, ING Funds, Manulife Unit Trust, Public Mutual and RHB Investment Managemnt. Most of those companies approved to provide PRS services had said that they would begin taking contributions in the second half of 2012. The development of PRS services was set out in the Capital Market Master Plan 2 (CMP2), which was spearheaded by the SC and unveiled in April 2011. Among its key goals, CMP2 is intended to assist the markets in more effectively utilising domestic savings for capital formation, increasing the capacity and efficiency of the capital market in financing investment requirements for economic growth, and addressing efficiency of savings intermediation, with one of the paths towards these objectives being PRS. At present, Malaysia’s main state-backed superannuation programme is the Employees Provident Fund (EPF), which collects mandatory contributions from registered workers. The funds are then invested in a range of revenue-earning instruments. Estimates put the amount of funds under the control of the EPF at almost US$165 billion, roughly half of Malaysia’s GDP in 2011. While generally seen as successful, the EPF only taps a relatively shallow pool of funds. Market observers said that PRS is considered an option that could siphon off more private savings and better utilise them in the economy, as well as spread the investment risk and ensure that more people will have their retirement needs met. They said that besides relieving pressure on the EPF management, PRS would help to mitigate over-concentration of investment funds in a single entity. Therefore, these schemes would add another layer of depth and liquidity to improve the efficiency of the markets. In addition, a well-designed PRS can better cater to the different income and age profiles, as well as risk appetites of contributors, as against the one-size-fit-all scheme currently in place in the EPF, said the observers. OBG said that it would take time for PRS providers to sell their products to the public, which is long used to state-backed social insurance programmes. Some estimates suggest the level of funds under management through PRS will rise to around US$10 billion over the next 10 years. While a sizeable sum, and one that will be welcomed by the markets, it will be just a fraction of the total controlled by the EPF. Although it will be up to PRS providers to promote their products and the concept of private pension programmes, the government has done its part to buy into the scheme. As an additional incentive for Malaysians to take out PRS coverage, workers will be able to get a tax write-off on their annual contributions, while employers will also be given tax deductions of their employees’ salaries on contributions to PRS made on behalf of their staff. Having been given the go-ahead by the SC, OBG said Malaysians can expect the eight sanctioned PRS providers to start their respective promotional campaigns soon. OBG said while it would be much longer before the full force of investments begins to be felt in the markets, that flow would serve to deepen the capital pool and stimulate growth. -- BERNAMA