Opening Address
Private Retirement Scheme Launch
18 July 2012

YBhg Datuk Ranjit Ajit Singh
Chairman, Securities Commission Malaysia

Yang Amat Berhormat Dato Sri’ Najib Tun Abdul Razak,

Perdana Menteri Malaysia

Yang Berhormat Menteri-Menteri dan Timbalan-timbalan Menteri

Yang Amat Berbahagia Tun

Distinguished guests

Members of the Media

Ladies and gentlemen

Good evening

I would like to wish you a warm welcome to the SC for this very important milestone event for the nation and the Malaysian capital market.


First and foremost, I would like to thank the Prime Minister, Yang Amat Berhormat Dato Sri’ Najib Tun Abdul Razak, for graciously accepting our invitation and honouring us with his presence this evening and to kindly deliver the keynote address and officiate at this occasion, despite his extremely hectic schedule.


Today’s event is significant in our efforts towards the development of the private pension framework. It puts in place, the final components through the establishment of the private pension administrator, and approval of the first set of schemes and funds which we hope will set in motion a chain of events that can play a catalytic role towards the development of the third pillar of Malaysia’s pension’s framework.


The case for developing the voluntary private pension industry has been known. But, it has taken the foresight, determination and strong support of the Prime Minister to provide the momentum and impetus towards establishment of the framework in a fairly short space of time.


Of course, key initiatives of this scale and complexity are never achievable without the support and advice of many. On behalf of the SC, I would like to express my deep gratitude to the many who have assisted us, Ministers and Deputy Ministers who are present here, members of our private pension committee comprising of the Treasury, Bank Negara Malaysia, Inland Revenue Board, EPU, SSM, as well as the cross section of industry players who had provided their views and assisted in the establishment of the framework.

Private pension framework and private retirement schemes (PRS)

Ladies and gentlemen


The development of the third pillar of a comprehensive pensions and retirement framework for Malaysia is a key imperative. Given today’s demographic challenges, increased life expectancy, and rising living standards coupled with volatile financial markets we need to make some important decisions about the sustainability of our retirement income levels.


A multi-pillar pension framework is needed in order to cater for society’s varied retirement needs and to absorb the demographic risks faced by pension systems. Within a multi-pillar pension framework, Pillar One is a universal subsistence pension to provide for basic needs, Pillar Two comprises mandatory earnings-related pension and provident schemes and Pillar Three covers voluntary retirement savings.


Malaysia’s Employees Provident Fund (EPF), a compulsory national provident fund, has firmly established the 2nd Pillar in the pension model framework.


Although Malaysia has laid a strong foundation for a multi-pillar pension system, the challenges of pension reform remain without a voluntary system in place. Addressing these challenges is what defines today’s event. The launch of Malaysia’s voluntary private pension industry will, it is hoped, address the gaps in the retirement savings landscape and provide an alternative platform for the accumulation of retirement savings to complement the existing mandatory system.

The private retirement scheme framework

Ladies and gentlemen


While there is no perfect system that can be applied universally around the world as every pension system is different due to different economic, social, cultural, political and historical circumstances, the SC in building a robust private retirement scheme industry were guided by critical aspects that must be covered by any successful pension reform.


A thorough review of international best practices of voluntary systems worldwide was conducted; strengths and areas that require improvements were identified; extensive consultations were held with the industry, employers and trade unions, as well as with global pension experts, and then an appropriate framework to suit the Malaysian environment was formulated.


Several key components were obvious – First of all there needed to be the trust and confidence in the system. In order to achieve this, relevant laws were passed in October last year to put in place a legal framework to regulate and supervise the key participants and components of the private retirement scheme industry. Detailed eligibility requirements for Private Retirement Scheme Providers were prepared and issued, that clearly stipulated the expectations and requirements for interested and qualified parties to apply to become private retirement scheme providers. Based on this eligibility criteria 8 private retirement scheme providers were selected.


The SC has also prepared and released following consultations with industry, guidelines for the regulatory and operational requirements that must be complied with by all the Providers, scheme Trustees and investments of the private retirement schemes.


Second, there was a need to establish an efficient administrative framework to ensure efficiency, portability and ease of transfers. Our assessment of international experiences as well as feedback from the domestic players have shown that having in place a centralised administrative platform within the overall private pensions architecture would help both the employers, contributors as well as the providers.


Not only does a central administrative platform play a vital role in ensuring operational and cost efficiencies for the industry, it also ensures that private retirement schemes can be governed effectively over the long term. The most basic of scheme functions, like knowing who to pay, how much, and when, are all dependent on good administration practices. Expectations of getting the best service from advisers, managing investments and communicating with members is premised on good internal controls, a fundamental aspect of private retirement scheme governance.


Third, was to provide a sufficient choice of providers and schemes for people to plan their retirement options; which depend on the stage of their life cycle, retirement goals as well as their own risk appetites. However, we also ensured that there was a set of core funds available for contributors who may choose to invest but not take on as active an approach towards the selection of funds.


With the launch of these private retirement schemes, investors can anticipate a wide range of funds with differing risk profiles available for selection, assuming they have assessed their own risk profiles and attained a good understanding of the risks that apply to them. Investors are encouraged to take the time to familiarize themselves with the functioning of private retirement schemes and other administrative matters pertaining to the private retirement scheme funds.


Ladies and Gentlemen, the growth of the voluntary private retirement industry depends on a variety of factors, such as the social preferences and commitment to adopt such reforms, as well as the enabling environment for such reforms. Given that the private retirement scheme is a voluntary system, the right enabling environment will ultimately play a key role to nudge behaviour for people to appreciate the benefits of building up additional savings to maintain a reasonable quality of life, as well as diversification of their retirement investment portfolio.


The government on its part has played a key role in incentivising participation when the Prime Minister in the last Federal Budget announced a set of major tax incentives for scheme investors, employers who contribute on behalf of employees as well as the for the funds itself.


For this reason, the SC has chosen to allow a lead period of several weeks for a campaign to ensure better understanding and awareness, run by the SC and the Private Pension Administrator followed by a series of seminars by the providers.


Ladies and gentlemen,


The development of the private pension fund industry will play a major role and contribute towards the development of the capital market. In order to grow and competitively position Malaysia’s capital market we must consistently focus our minds and efforts towards better mobilisation and intermediation of savings and investment pools and build the buy side of the capital market equation.


The contributions accumulated in the private retirement scheme industry would provide an additional source of long-term capital to increase liquidity and vibrancy in the capital market. Having in place a vibrant investment management industry with varied players and pools of investment capital is important to the deepening of the capital market.


Our vision for a new private pension industry has become a reality today built on a strong foundational level that would generate the desired outcomes that straddles the individual, capital market and the country.


Yang Amat Berhormat Dato Sri’, I would like to once again thank you for being here with us and supporting this very key initiative.


Thank you very much Ladies and Gentlemen.