- Title: Mrs
- Position: PhD Student - Department of Applied Finance and Actuarial Studies
- Load: PhD Student Full Time
- Principal supervisor: Dr Sachi Purcal
- Associate supervisor: Dr Shauna Ferris
- Date of submission: 01/04/2014
- Thesis title: Retirement Annuity Options for Malaysian Defined Contribution Plan Members
- Abstract: Mortality improvement in many countries nowadays has drawn the policymakers’ attention towards providing a financially stable retirement scheme for the retirees. In some countries like Chile and Switzerland, annuity is common as a successful product with a good retirement benefit. However, annuity market is still very under developed in some other countries including Malaysia and thus results of lack of options for the policymakers considering for pension reforms. The purpose of this study is to discuss annuity provision as a possible reform for the payout phase of the Employees Provident Fund (EPF) scheme in Malaysia. Possible ways of annuity provision can be either by private annuities or government annuities, participation can be compulsory or voluntary. This study also computes the Money’s Worth Ratio (MWR) and Annuity Equivalent Wealth (AEW) of the suspended EPF annuity scheme. Such a computation is useful for international comparison. My research aims further to project the cost and welfare implication analysis for both the annuity provider and the EPF members. Under the analysis, this paper develops a retirement annuity model for Malaysia using Computational General Equilibrium and the Overlapping Generation Model. This study suggests that for an under developed annuity market country as Malaysia, government annuities provision is preferable in terms of cost for provider and welfare improvement for members.
- Purpose: Private annuities were introduced in the Malaysian market back in year 2000. However, this product has been suspended by the government a year after, due to objection by the Malaysian Trade Union Congress (MTUC). Reasons were that it is a for-profit scheme only for insurance companies and it provides lack of protection to contributors’ retirement savings. The aim of this paper is to provide actuarial analysis related to the annuity provision in Malaysia. Our analysis will be used to evaluate whether this annuity is worth buying for consumer using an actuarially fair price and also the market price.
- Originality: Since Malaysia’s 2000 private annuities were suspended in year 2001, to the author’s knowledge, there is no proper actuarial analysis to value the annuity product. This study evaluates the value of Malaysia’s private annuities using methods widely known by economists who are the experts in annuity studies.
- Key Literature/theoretical perspective: Kotlikoff and Spivak (1981) introduce the idea of the comparison of initial wealth required for a consumer with or without annuities to achieve the same expected utility level which is called Annuity Equivalent Wealth in this paper.
- Design/methodology/approach: Our study aims to provide several actuarial analysis of the Malaysia’s 2000 private annuities by computing the Money’s Worth Ratio (MWR) and the Annuity Equivalent Wealth (AEW) of the product.
- Findings: Not yet available
- Research limitations/implications: The annuities’ product information is not longer available as of 2012; analysis in this paper is based on information obtained from previous research papers.
- Practical and social implications: The annuity market is still under developed in Malaysia and it requires further studies to ensure the success of such annuity product in the future. With the improvement of mortality rates almost everywhere in the world, Malaysia needs to be ready for a pension reform strategy including the annuity provision.
- Keywords: Malaysia’s private annuities, Money’s Worth Ratio, Annuity Equivalent Wealth