Good response to new investment guidelines

Sources: The Star Online (YAP LENG KUEN)

PUTRAJAYA: The Government has received good response to the recently relaxed investment guidelines from potential investors in the Middle East, China and India.

“We have received enquiries related to Islamic finance, banking, construction, education, information technology, outsourcing, infrastructure and tourism,’’ Finance Ministry secretary-general Tan Sri Dr Wan Abdul Aziz Wan Abdullah told StarBiz.

Foreign investments this year are expected to be only half of last year’s figure, and the Government has stepped up efforts to facilitate the private sector to play a more active role in contributing to economic growth.

Private investment growth has slowed to an average of less than 5.1% a year since the Asian financial crisis of 1997/98 against 19.2% a year during 1990-1997. Some of the factors include:

rising costs of production leading to lower returns on capital;

● low levels of efficiency with inadequate investment in skills training, technology upgrading, and research and development; and

● skills and technical knowledge gap.

“Additionally, the continued dependence on cheap and low-skilled labour is a hindrance to moving up the value chain and attracting more capital-intensive investment,’’ Aziz said.

The Government recently liberalised the services sector, bumiputra equity guidelines as well as the fund management and stockbroking industries, and set up Danajamin Nasional Bhd to help viable companies tap the bond market.

Meanwhile, Government-linked companies will now focus on core activities and divest their non-core activities. This will enable greater private sector participation in the economy, while ensuring fair competition.

“All the measures announced are initial steps to boost private investment, both domestic as well as foreign, and contribute significantly to economic growth. The Government will introduce a new economic model which would transform Malaysia into a high-income economy,’’ Aziz said.

He said the Budget 2010, to be announced on Oct 23, would adopt a slightly different approach in view of the recent global financial crisis. “We are working with limited resources. There will be adjustments and sacrifices as we cannot meet all requests,’’ he said, adding that the approach would be outcome-based.

“It will be based on the outcome of a certain initiative rather than measuring of output,’’ he said.

For instance, in education, it would not be so much in terms of the number of higher learning institutions built but the quality of graduates who are employable.

Following the annual budget consultation on June 11, a series of focus group discussions will be held to look into issues, which include private investment, public transport, crime prevention and public safety, education, rural infrastructure, social safety net, human capital, fiscal consolidation and niche growth areas.



“This inclusive budgeting process helps ensure that the measures and resources allocated in the budget are well targeted and consistent with broad socio-economic objectives of the Government,’’ Aziz said.

Is your EPF money enough for retirement?

Sources: Wednesday July 15, 2009
Is your EPF money enough for retirement?
by Ooi Kok Hwa



A look at whether a retiree can survive after losing monthly income and with only EPF savings to rely on


SOME studies conducted in Malaysia have shown that most retirees spend all their EPF money within three years of their retirement. Given that the average lifespan for a Malaysian is 75 years, if we retire at 55 and spend all our EPF money within three years, a lot of us will be wondering how to survive from 58 to 75.

The most worrying question that most of us will be asking is how to survive retirement when we lose our steady stream of monthly income to cover our daily expenses.

However, if we have been building an investment portfolio apart from EPF money, we would not be able to generate a source of returns from our own investment portfolio.

In reality, a lot of us have been spending most of our savings, including part of our EPF savings on our children’s education and clearing debts on house and car purchases, which leave us with not much savings for our retirement.

With this general concern in mind, let’s look into how much of our EPF money we can afford to spend to have enough for our retirement based on the our local conditions and some assumptions.

Generally, an average Malaysian starts working at 25 and reaches retirement at 55 (after 30 years of working), thereafter living the remaining 20 years (until 75) relying on the EPF savings.

We will assume a starting pay of RM1,500, growing at the rate of 8% per annum; an average bonus of two months per annum, average EPF returns of 5%, total EPF contribution of 23% (employer: 12%, employee: 11%) and inflation rate of 3%.

Our main objective is to test how much EPF money we can spend until we use it all up.

Our analysis shows that if we are able to live with just one-third (or 33%) of our last drawn salary, the EPF money should be able to support us for 20 years until we pass away at 75.

From the example below, if a person’s last drawn salary is RM13,976 at 55, he can only afford to spend one-third or RM4,612 per month after retirement (1/3 x RM13,976).

However, if his spending exceeds the one-third level, such as 50% or the full amount of his last drawn salary, his EPF money can only last 12 or five years respectively.

Even though our computations are based on a lot of assumptions and hypothetical scenarios, our objective is to bring to your attention that we need to be careful in spending our EPF money and control our expenses once we retire.

We will need to adjust our lifestyle after our retirement, especially for those of us that are used to spending most of our take-home pay when we are still working.

Once we lose the regular income source and are relying just on the savings, we will need to plan carefully in order not to out-live our savings. In this example, we can only afford to spend 33% of our last salary after retirement!

Everyone has different financial situations. However, we need to plan for our retirement. If possible, we need to build our own investment portfolio apart from the EPF savings. We may need to seek some part-time jobs after retirement if our financial resources do not permit us to stop working. Besides, we need to clear all our outstanding debts before retirement.

We also need to buy enough life and medical insurance for ourselves as well as set up education funds for our children.

Last but not least, one important point to note is that our computation is based on the assumption that we are still able to generate 5% returns after retirement.

Unless we have the skills and knowledge to generate the returns, putting the money back in EPF and letting EPF generate returns may be a good option. For the average person, we feel that it is not easy to generate 5% returns annually over a long period of time.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.