Stakeholders including life insurers, pension providers and investors need to work together cohesively to educate the population on financial protection, said Mr Ramzi Toubassy, Vice President and Chairman of the Industry Promotion Committee, Life Insurance Association of Malaysia (LIAM) at the 13th Asia Conference on Pensions & Retirement Planning yesterday. And they should start educating Generation Y.
While each of these stakeholders is working in their individual way, there is not much communication between them, Mr Toubassy noted. Citing Bank Negara Malaysia statistics that only 34% of Malaysians have life insurance and its target to hit 70% by 2020, he said: “You cannot reach that without the help of the whole financial industry, that’s why it’s very important to learn from each other.”
What is disturbing is that of the 34% that have life insurance, over 90% are underinsured, he said. If a government does not implement compulsory savings and retirement savings plans, what would the private institutions do to ensure the population is getting necessary funding protection for their livelihood, he asked rhetorically. He pointed out that Malaysia has its mandatory Employees’ Provident Fund (EPF).
Mr Toubassy said that the key target group for financial education is Gen-Y. This is a “tough” group to engage. They socialise mainly through mobile devices, and while they do not communicate in the traditional manner, they are much more well-prepared than previous generations when they seek services.
“If we are not ready to provide services for Gen-Y in future, I guarantee someone like Alibaba will come in and take over ,” he said, describing the competition that the likes of the dominant Chinese e-commerce company pose to insurers. “That’s why it’s very important to look at how we can capture Gen-Y.”
To reach out to this group, he said that LIAM has been visiting educational campuses in Malaysia to promote its “YOLO (You only live once) Video Awards” contest, which encourages youth to live life responsibly in terms of not just financial services, but also other aspects.
“Don’t just talk about life insurance and pensions, because then they run away,” he quipped.
Promoting voluntary long-term savings schemes
Briefing the audience on Malaysia’s Private Retirement Scheme, a voluntary long-term savings and investment scheme which complements other schemes like EPF, Mr Husaini Hussin, CEO, Private Pension Administrator Malaysia (PPA)/ Private Retirement Schemes (PRS), described the various incentives by the Malaysian government to encourage take-up, including the successes and challenges associated with incentivising youths and millennial generation.
He said that the PRS Youth Incentive is a one-off MYR1,000 (US$239) incentive granted to qualified youth members aged 20-30. So far, the PRS has been successful with this group, with 70,000 benefitting from the Youth Incentive scheme and 27% of PRS members being youth aged 30 and below.
Challenges in rolling out PRS include the need to change people’s mindset so that they would make retirement savings a priority while they are still actively earning and not view PRS merely as a tax-saving scheme. For millennials who live solely for the present, they tend to have poor saving habits and saving for retirement is not a priority.
Another challenge is the rise of the “gig economy”. In Malaysia, the trend toward temporary and flexible jobs, and self-employment instead of full-time, permanent, jobs means these people are not covered by the mandatory pension scheme.
The roadmap to grow PRS involves embracing FinTech for PRS transactions to be conducted online, especially through the use of smartphones. This would complement, but not replace, traditional face-to-face channels, said Mr Hussin. There are also plans to further diversify asset allocations of PRS funds, and introduce other collective investment schemes such as REITs and Exchange-Traded Funds.
Target date funds
On retirement planning asset allocation solutions, Mr Binay Chandgothia, Managing Director, Portfolio Manager, Principal Global Investors, spoke of the huge growth of target date funds as the preferred vehicle to save particularly in the US, though they are now being recognised by investors and regulators in the region, notably in Hong Kong. These funds are age-based retirement investments, which involve taking more risks when you're young and getting more conservative over time.
The funds are automated products where risk allocation is done based on the life cycle and not emotions. The investment manager identifies asset classes and designs an informed glide path considering the demographic and behaviour of the investor and allocates assets to balance risks throughout a lifetime.
The 13th Asia Conference on Pensions & Retirement Planning is organised by Asia Insurance Review and Principal. It is held in Kuala Lumpur, Malaysia, and ends today.