Annuity Product - Potential

INSURERS are set to launch a slew of annuity products in the near future now that the government has proposed to remove the eight per cent investment income tax on deferred annuity.

More consumers are expected to snap up annuity products since they can expect better returns.

The realisation of a need to have a retirement or annuity plan has intensified of late, prompted mainly by concerns that the life-long Employees Provident Fund (EPF) savings are too small an umbrella to protect from all the rainy days during one's twilight years.

According to the EPF, 72 per cent of contributors who withdraw their savings at the age of 55 tend to spend all the savings within three years.

Furthermore, with tremendous advancements in medicine, people are living longer than before while medical bills will also be higher than before.

According to the Life Insurance Association of Malaysia (LIAM), with the ageing population and rising costs, a private pension scheme is required to supplement the income for the current generation who will retire in future years.

For private pension schemes to take off, as evidenced from other overseas markets, LIAM believes the government will need to provide tax incentives to pension scheme contributors.
For the majority of the working population, the EPF is the nearest that they could have as an annuity plan.

Back in July 1 2001, the EPF launched its annuity scheme but it was scrapped due to objection from trade unions and consumer organisations that wanted the scheme to be managed by the EPF and not by the insurance industry.

However, within slightly less than two months after it was launched, a total of RM160 million in single premiums were withdrawn to purchase the annuity - RM140.43 million for the conventional annuity scheme and RM18.72 million for the takaful annuity scheme.

In its 2000 annual report, the EPF reported that the annuity scheme recorded the highest number of applications among the new withdrawal schemes that were introduced in that year.

As at end 2000, a total amount of RM720.19 million was withdrawn by 33,412 members to purchase annuities.

Insurance players took notice of consumers' appetite for the such pension plans but was hindered by the eight per cent tax on on annuity fund.

But this will now be removed and put annuity in the same level playing field as the private retirement scheme (PRS) that was launched in July this year.

But, unlike the PRS that is managed by only eight providers, the annuity scheme is open to all insurers.

The pension market in Malaysia is gaining importance thanks to Bank Negara Malaysia's masterplan for the financial services sector.

Consumers can expect more retirement planning initiatives by the government to cater for one's twilight years as the country pushes towards a high-income status.