Welcome Address

Tan Sri Zarinah Anwar
Securities Commission Malaysia

Forum on Private Pension Industry and Retirement Funds

23 July 2009
Securities Commission

Yang Berhormat Tan Sri Nor Mohamed Yakcop,
Minister in the Prime Minister’s Department

Distinguished speakers

Ladies and gentlemen

1. Good morning and welcome to the Securities Commission. We are very honoured and pleased to have with us today Yang Berhormat Tan Sri Nor Mohamed Yakcop who has graciously accepted our invitation to deliver his keynote address at this forum. Thank you very much Tan Sri.
2. I would also like to acknowledge and extend a warm welcome to our speakers who have taken time off their busy schedules to share their considerable knowledge of the subject matter that we are discussing. I hope that this event will open doors to more collaboration in the future.
3. The SC is indeed privileged to be organizing this event in conjunction with the Economic Planning Unit which is looking at private pension as part of its overall review of the pension and social security system in Malaysia. We are indeed fortunate to have with us speakers with diverse expertise and experience who will no doubt provide invaluable insights into the relevant issues across the entire private pension value chain. This forum will set the stage for us to share experiences, discuss key challenges, and enhance awareness as well as understanding on the private pension industry.
4. In reviewing the UK pensions system, Lord Adair Turner, the Chairman of the Financial Services Authority, said that “there was no crisis for today’s pensioners”, but he also concluded that unless radical action was taken to deal with increasing longevity and chronic under-saving, then we would have a future pension crisis.
5. The recognition of global ageing has indeed led to worldwide debate on providing retirement security to the population, the main consideration being, to promote old age income security. A recent survey on the finances of a large sample of baby boomers, due to start drawing their pensions soon, found that about two thirds of them had failed to make enough financial provision for their retirement to maintain their current standard of living.
6. This underscores the importance of pension systems to the economic and social stability of countries and the security of their aging population. The experience with reforms over the past ten years has also shown that there is no one ideal or perfect solution. Countries have a number of different combinations of the elements of an effective pension system to choose from, depending on their own national circumstances. What also emerges is the continued relevance of the two main aims of pension systems: reducing poverty, eliminating the risk of rapidly falling living standards in retirement; and the broader goal of protecting vulnerable elderly people from economic and social crises.
7. Now the debate about sustainable pension systems for the future is all about spreading the load over several pillars. To take the pressure off public pensions, many governments have encouraged private pension plans, which have expanded rapidly in the past ten years. In some countries, including the United States of America, Australia, Denmark and Switzerland, private pensions now account for up to half of total retirement income.
8. Regardless of the design of the system, it is essential that, over time, the systems contribute to growth and output to be able to provide the promised benefits. To achieve this, reform should support labor and capital market efficiency, reinforce measures to improve savings mobilization and facilitate financial market development.
9. The remarkable success of the Employees Provident Fund has led to an unintended consequence – the private pension industry in Malaysia has remained underdeveloped. Defined contribution, privately managed pension schemes are almost non-existent. Savings for retirement purposes is seldom seen as a personal responsibility. This results in tremendous pressure and often unreasonable expectations on mandatory retirement schemes. The development of voluntary private pensions will ensure that individuals take personal responsibility for at least part of the retirement needs. This will complement Malaysia’s mandatory retirement savings schemes as the third pillar in a multi-pillar pension framework to address old age pension.
10. While it is true that the development of the capital market cannot be the main justification for pension reform, it is equally true that no private pension industry, indeed no pension reform, can succeed without a deep, liquid and efficient capital market. The development of a private pension fund industry will also result in the accumulation of assets that would foster further development of the capital market by improving efficiency and providing new sources of fund. These increasing long-term private savings must also be matched by the availability long term investment instruments. Moreover, the stability and liquidity of the market will be enhanced through the presence of private pension funds, which ensures a steady stream of long term funding, to cater for the needs of the economy in all economic conditions. A thriving private pension industry will also encourage the emergence of intermediate service providers, and enhance the level of competition between different pension providers in the market. This will increase the level of product innovation and diversity and expand the activities and range of skills of the intermediaries. Furthermore Private pensions require a whole array of prudential and protective regulations – things which capital market regulators are extremely familiar with such as authorization, asset segregation, fit and proper tests, custodians and the like.
11. In the long run, the creation of more institutional-based investors through the private pension industry will create potential activist shareholders which would improve corporate governance practices and increase shareholder discipline. Corporate governance as we are all aware, is a key element in ensuring smooth and accountable governance of any entity, including the governance of private pension funds.
Ladies and gentlemen
12. We are grateful for the support given to the efforts to develop the private pension fund industry by Yang Berbahagia Tan Sri Nor Mohamed Yakcop of the EPU. We will work closely with EPU, members of the industry, and relevant stakeholders to examine the issues and prioritize the areas that need to be addressed.
13. I hope that this forum would provide a platform for us to learn about successful models in other countries. I am certain there are significant knowledge and insights that can be gained from the experience of the experts who are here with us today. I look forward to receiving your full support and input as we embark on this effort.