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Nurin Asmuni

First Name: Asmuni
Surname: Nurin
Department Dept of Applied Finance and Actuarial Studies
Supervisor(s): Dr. Sachi Purcal , Ms. Shauna Ferris

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Paper Title

Malaysia’s 2000 Private Annuity Experiment: An Evaluation

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. Private annuities were also 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. Regardless of this controversial issue, 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. 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.

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