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Self-Employed Laud Private Pension Scheme
By Sidek Kamiso
The Star, June 22, 2004
Although working on his own comes with certain financial privileges, he loses out on the regular contribution to the Employees' Provident Fund (EPF), which most workers take for granted.
For most self-employed people like Low, his contribution to the EPF stopped once he left a full-time job. When he started his own practice, he could instead subscribe to one of the many unit trust schemes available to save for his retirement, but nothing offers the same tax benefits as the EPF.
Contribution to unit trust schemes is not tax deductible, as such schemes do not provide the same capital guarantee as the EPF, while income from it is also not tax-free.
The longer Low is self-employed, the more he feels that the Government should have a scheme similar to the EPF for employers. This is why he rejoices when the Government mooted the idea of a private pension plan recently
"I feel that I should also benefit from the tax break enjoyed by employees," he told StarBiz, adding that employees should not lose the benefit only because they had decided to work on their own.
In fact, 20% of Malaysia's total working population are self-employed and should the Government go ahead to introduce the private pension plan, it could benefit as many as one million people.
For this group of people, putting RM50,000 aside a year each for their retirement would not be a problem and collectively they could add some RM50bil to the fund management industry.
While many self-employed are excited about the scheme, it may take a long time before it could take off.
Insurance industry officials declined comment on the issue except to say that the Government was very supportive of their original proposal.
"I see the Government is very supportive of this idea and the impact on the economy, but it may take a different form than what the industry has planned," said a senior executive of a foreign life insurer.
It is understood the Government has set up a committee, comprising insurance companies, fund managers and employers' representatives, to look into the matter.
An initial industry study has shown that the self-employed are willing to put their money in this scheme should they get some kind of tax advantage.
At the same time they also want some security of having at least part or most of their investment guaranteed by the Government.
However, since the scheme might require some changes to existing laws, this could delay its actual implementation, said a fund manager with an insurance company.
Despite the hurdle, he agreed that the pension funds could drive the stock market, given the similar impact of private pension funds such as the United States' The California Public Employees' Retirement System (CalPERS).
Due to its huge fund size, CalPERS' movement influences the global markets.
"I think the Malaysian public is ready for this but the Government should think hard before such scheme is implemented," said the fund manager.
He said the potential volume created by the private pension fund could indeed stimulate the local stock market and probably create multiplier effects on the economy.
Because of this, the Government might want to fast-track the scheme so as to benefit not just the million self-employed, but also the rest of the economy, he added.
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