Saving For Retirement

Malaysia's voluntary private-retirement savings program has gotten off to a slow start since being launched last year, despite lures of tax breaks for contributions and a high overall savings rate in the country.

Employees in Malaysia are required by law to contribute to the separate Employees Provident Fund, or EPF, which holds assets valued at more than 536 billion ringgit ($169 billion). Returns on that government-run pension fund have been at least 4.5% annually over the past decade, while one-year fixed deposits in banks earn up to 3.2%.

Still, authorities worry that Malaysians aren't saving enough for retirement. And as the Employees Provident Fund gets bigger, the government is concerned it won't be able to generate high enough returns to fund people's retirements.

Last year, the government launched the private-retirement program in an effort to supplement the savings in the provident fund.

Despite tax deductions on contributions and potential higher returns than in the provident fund, only slightly more than 30,000 accounts have been created, according to the Securities Commission. That pales in comparison with more than 6.4 million active contributors to the Employees Provident Fund.

The steady returns on the EPF are making it more difficult for the group of nascent private-retirement funds to persuade both employers and employees to sign up.

Although Malaysia's average age is relatively young at 26 years old, and private savings in the country exceed a third of gross domestic product, authorities say there is an urgent need to raise the level of awareness on boosting retirement savings as life expectancy rises.

Steve Ong, chief executive of the Private Retirement Scheme Administrator, a Malaysian state body set up to oversee and promote the industry, says the average Malaysian has saved about 160,000 ringgit with the Employees Provident Fund for roughly 20 years of retirement, which is insufficient.

Employees are required to contribute at least 11% of their income to the EPF, and employers must contribute 13%.

To help kick-start the industry and entice workers like Ms. Lim, the government gives annual tax deductions of up to 3,000 ringgit for the first 10 years on the new funds, while employers will be given tax deductions on contributions made on behalf of employees.