Slide Digital Catalyst to Influence Retirement Saving Habits

The digital revolution is upon us at lightning speed, and Malaysia is well positioned to ride the wave of change thanks to forward-looking national policies designed to drive the digital economy.

We live in an era of e-everything, from e-commerce and e-banking to e-learning and e-research. Many Malaysians are now shopping online, while some have diversified their income channels through the digital economy. Equally important is that a high number of Malaysians are also embracing online financial services to top up their Private Retirement Schemes (PRS) accounts. In a survey conducted by the Private Pension Administrator Malaysia (PPA), 30.5% of respondents topped up their retirement savings through PRS Online. The PRS Online Top Up facility allows PRS Members to increase their savings with any of the eight PRS Providers in an easy, convenient and secure way through PPA’s website www.ppa.my.

Almost 6,000 PRS Members took part in the survey in Q3 2017, and 28.6% of respondents indicated that they want more facilities to conduct transactions online. “This data is encouraging as it shows that we are on the right track in introducing digital services to PRS Members. PPA will continue to embrace FinTech (Financial Technology) and introduce value-added services online,” said Husaini Hussin, CEO of PPA. At the time of the poll, the PRS Online Top Up facility had only been introduced for 10 months, and was already the second most popular channel used by members to top up. The conventional channel to top up through PRS Consultants remains the first choice of PRS Members at 47.2%. Another 15.8% of respondents personally banked in to their PRS account while 6.6% saved through salary deduction.

Buoyed by the response, PPA launched the PRS Online Enrolment on Jan 26 this year, which allows Malaysians to sign up for a PRS account via www.ppa.my in an easy, convenient and secure manner to build savings for the future. Through PRS Online Enrolment, new PRS Members aged 30 and below will enjoy zero sales charges with selected PRS Providers. PPA, as the central administrator of PRS, serves as a one-stop resource centre for the public on retirement learning and PRS, as well as services related to accounts of PRS Members and investments with any of the eight PRS Providers. Last year, PPA revamped its website to be mobile adaptive, more vibrant and user friendly. A variety of e-learning modules are available in various formats, ranging from write-ups to infographics and videos. Also housed on the website is the retirement calculator, which helps individuals to project the amount of funds needed for their retirement by keying in a few simple details.

“Quite often we are asked how much one needs to retire. There is no standard answer, as it depends on each person’s lifestyle and standards of living. Through the retirement calculator, you can get a personalised forecast,” said Husaini. Having a target is important as a majority of Malaysians want to retire early. In another poll conducted by PPA, 48.2% indicated that they would like to retire before they reach the mandatory retirement age of 60, while a further 30.8% said they plan to retire when they turn 60.

There is another benefit to making regular monthly contributions versus lump sum with regards to timing when you should invest your contributions into your chosen PRS fund. Since you will have to invest your savings to generate compound growth, managing market timing risks is an important consideration.  As no one can time the market, investing lump sum contributions run market volatility risks. Regular saving and investing on the other hand, allows you to mitigate market volatility through “dollar-cost-averaging” by averaging out market fluctuations throughout the year.  By regularly investing your PRS contributions, you would not have to worry about the condition of the market.Of almost 1,200 Malaysians who took part in the poll, 60.9% indicated they would be disciplined in spending their retirement savings by withdrawing only the sum needed to sustain their standard of living.

“We encourage this behaviour, as it allows the balance sum in PRS to continue growing,” he said. The other respondents said they would use their retirement savings to fund their hobbies (29.3%), fund their children’s education/wedding (6.1%) and renovate the house/buy a house and move back to hometown (3.7%). “All this is well and good if you can afford it. As our longevity increases, we must plan to have enough savings to last us through our retirement years. Given the mortality rate today, many of us will live until we are 80,” said Husaini. To get a head start in saving for retirement, Husaini’s number one advice is: “Start young, start now”. “The earlier you start, the longer time horizon you have to benefit from compounded growth. And save before you spend. This will keep you disciplined in saving,” he said. In line with this objective, the PRS Youth Incentive help youths kick start their PRS savings with a simple mechanic: “Save RM1,000, get RM1,000”. This one-off incentive is open to youths between the age of 20 to 30, and is available until the end of 2018. “It is totally worth it. Where else can you find a scheme that doubles your investment immediately?” said Husaini.

He reminds Malaysians to continue saving in PRS after their initial deposit. By saving regularly, one gets to leverage on dollar-cost averaging and ride out the risk of market volatility. From the poll, one-third (33.3%) of Malaysians save between 10-20% of their monthly income, while 23.5% save more than 20%. However, it is equally worrying that the rest save less than 10% of their income. “It is important to review your spending if you find that you don’t have enough to save. Some sacrifices have to be made, like giving up designer coffees or reducing the number of trips to the cinema.” “It is important to distinguish your wants and your needs. Ultimately, you must keep in mind that you are doing this for yourself. You are saving for the future you,” said Husaini. At the close of February 2018, there are 313,565 PRS Members, a whopping increase of 38.2% compared to February 2017. In the same period, the combined Net Asset Value (NAV) of the 56 PRS funds jumped by 45.4% to RM2.31 billion.

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