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Financial Options For Retirement in Malaysia

Financial options for retirement and aged care to ensure lifelong sustainability in Malaysia identifies the need for an integrated financial and healthcare framework for ageing population. The existence of a fragmented financial framework in the current retirement landscape coupled with the immediate need for continuous care at old age warrants a strong cohesive mechanism to ensure individual Malaysians are able to sustain their retirement and ultimately their aged care needs because of longevity risk and increasing healthcare costs.

How do other countries handle aged care?

By BRIGITTE ROZARIO

EVERY country has a different approach to aged care. Some have a heavy reliance on government and public funding. Others rely more on the private sector.

As every nation has different resources, financial systems and legal framework, no one model can be replicated in its entirety in another country.

However, we can learn from those who have and are trying various methods and models and have been doing it for a longer time than Malaysia, especially since we are only now trying to build our retirement industry.

At the recent Sustainable Retirement & Aged Care Conference (SRACC), organised by Kenanga in partnership with Aged Care Group (ACG), one of the panels featured speakers from the US, Australia and Singapore. They shared their experiences in the panel titled “Lessons and Experiences from Abroad”, which was moderated by David Ong, a partner in Chooi & Company Advocates & Solicitors.

“When we start thinking about retirement and aged care, the immediate thought that comes to mind is living assistance, nursing care, general healthcare services, but in reality it involves much more than that. It requires a very holistic and multi-disciplinary approach to get the whole ecosystem set up properly. What are the key factors to bear in mind when trying to set all this up?” asked Ong.

Building for the future

Dr Jason Yap, Associate Professor in the Saw Swee Hock School of Public Health in the National University Health System, shared his experiences as a public health physician with 28 years experience in public and private healthcare in Singapore, covering public policy, informatics, marketing and education.

He explained that aged care is challenging and complex. In the past, healthcare providers only had to rectify health problems and send the patient home. These days, they also have to consider whether the patient needs support and care at home and who will be there to administer it.

Dr Yap said that a lot of people talk about doing things holistically, not knowing what it really means and with processes and results that were not in tandem with this aim.

Another challenge is building for the future. “We need to realise that things evolve. The people who are going to be in these nursing homes by the time you finish building in about 10 years, will be a different group from the ones who are there today,” said Dr Yap.

He emphasised the need to have a balance between individual and unique designs, and centralised standards when building facilities for the aged.

“At the national level, if the government spends too much time on the nitty-gritty of housing design and smaller things, and not enough time on the larger things, then you will have a mismatch of trying to put the whole thing together. You will have beautiful houses but people can’t get to them because there are no roads leading to them.

“Architecture, model of delivery of care, the needs of the people, the groups of people we are talking about, financing – those are the big picture things we have to be clear about and which we have to have some form of conversation about before we go into the specific components,” he added.

Inter-ministerial committee

Adrienne Mendenhall, country manager of ACCESS Health International Singapore, a non-profit think tank and advisory group, praised the way Singapore has gotten all the ministries involved in the “conversation” by having an inter-ministerial Committee on Ageing.

“In Singapore what we find is really unique is the Committee on Ageing, which has many ministries represented on it and is headed by the Health Minister. The administration part of the committee is under the Ministry of Health but it really involves all the ministries. It is very unique because when you have a meeting with MoH, you’ll have someone talking about transportation, manpower initiatives, and education.

“It’s a very unique way of saying, here are our goals as a country for ageing in place, for active ageing, what we want people to be doing, what we want their lives to look like, how we help people get around so they can be active,” she added.

According to Mendenhall, Singapore’s Committee on Ageing seems to be able to work together in a comprehensive way, unlike other countries where the programme seems more fragmented in terms of health goals and what is actually implemented.

Still looking for the right model

In China, it’s a very different scenario. Paul Phillips, managing director and founder of Grange Senior Living in Australia, has firsthand knowledge as he has been working with operators there to develop their aged care facilities.

Paul Phillips: 'China's market has been developing different concepts, trying to identify what the market would want.'

Paul Phillips: ‘China’s market has been developing different concepts, trying to identify what the market would want.’

“The China market is quite unique. It’s rapidly expanding. There are over 200 million seniors in China. They’ve got 140 million people, or 12% of the adult population, who have diabetes. In addition, the single child policy and urbanisation are all pushing towards senior living.

“The confusion in the market in China, which is probably not greatly different from here, is that currently there is no established senior living business model that’s been proven to work.

“In Australia, we’ve had the aged care framework, which has been operating, has been regulated and funded by the government, for the last 60 years, so we’ve got a very established system.

“China’s market has been developing different concepts, trying to identify what the market would want,” said Phillips.

The “F” word

One of the other challenges faced in China is funding.

“The government has now realised that it has a very big problem coming on. So, the government is looking at providing incentives to operators and trying to get foreign investment into China, which is a significant change from four years ago when there was no foreign investment in healthcare,” he said.

In contrast, there is a lot of government funding in Australia. He explained that the Australian government contributes about 65% of the revenue for aged care facilities.

“So about A$52,000 per resident is funded by the government. Clearly that’s not sustainable as our population ages, so our government has taken steps towards pushing the cost of care across to users. People who can afford to pay, pay. Those who can’t, the government subsidises,” he said.

Samuel Murphy, director of Knight Frank Valuations in Australia, with expertise in retirement villages, aged care facilities and hospitals, said there are always challenges in accessing capital for development.

“What broad numbers we see, and I saw some the other day, say that in addition to the cost of land, an average aged care facility in Australia will cost around A$200,000-A$250,000 per day to build. That’s to provide adequate treatment rooms, utility rooms, kitchen areas, recreational areas, all those beyond just the resident’s accommodation. So, there is a continuing difficulty in accessing capital,” he added.

Government role

Ong opined that the government needs to do a lot to spur the industry and it must increase the importance of the private sector to provide pensions and healthcare assistance.

Should Malaysia follow in the footsteps of our southern neighbour?

Dr Yap explained that the island nation is one of the fastest ageing populations in the world. Although this scenario was predicted as far back as 20 years ago, it is only in the last five or 10 years that Singapore has started moving towards having an aged planning office and the inter-ministerial committee.

“In terms of getting adequate facilities up, the nursing home beds are going to be doubled by 2020 or so, the number of home pay services is going to grow by 2.5 to 3 times in the same time span, we are launching a new hospital every three years. We just opened one. There will be two more coming up by 2022. So, obviously we are expanding the services.

“We realised it is not possible to get industry to do this. Historically, we have these convalescent or step-down hospitals for patients who have rehabilitation needs in a semi-acute environment. The first four or five were done through the voluntary welfare organisations (VWOs) and faith-based organisations. After the first five or so were created, the rest are all going to be government-funded because the sector just doesn’t have the capabilities. Even when the original VWO community hospitals were built, government funding was in excess of 80%, and the last 20% was a major challenge for them to raise. These days, some cost S$400-S$500 million to build a community hospital,” said Dr Yap.

While that may look like a lot of funding from the government, Dr Yap explained that in Singapore the public sector actually consists of private limited companies, or private hospitals owned by the government. These hospitals function separately from the government, under a holding company.

Samuel Murphy ... tax incentives have worked in the past in Australia.

Samuel Murphy … tax incentives have worked in the past in Australia.

“So, it is government funding but it’s not given to the private sector, but to the VWO sector. It’s money that remains within the public sector ownership, but within private limited company entities. It’s a different way of approaching things,” he said.

Tax incentives have worked in the past in Australia, said Murphy.

“We had tax incentives back in the early 1990s for the development of retirement villages. We had a tax deferral for the capital that was put into these villages. What that gave operators was the encouragement to put significant capital in and what has happened is we now have this generation of retirement villages that market themselves along the lines of a lifestyle environment.

“The tax deferral is not in place now but it did encourage a lot of investment into the sector then,” he explained.

Challenges

Comparing the various countries she has worked with, Mendenhall said all governments are now grappling with cost.

Adrienne Mendenhall ... all governments are now grappling with cost.

Adrienne Mendenhall … all governments are now grappling with cost.

“I’m not sure how the US is going to deal with this. Nursing home facilities are just abhorrently expensive.

“It becomes challenging even for upper middle class people to afford. A standard nursing home is going to cost a resident about US$100,000 a year. So, families start to move their properties, put their house in the kids’ names, try to pass off as much property and investments to the kids as quickly as possible so that that doesn’t get taken because they need to spend down their money so they can ask for more Medicare in order to pay for this,” she explained.

It has come to the point that Americans are facing tough decisions in order to get aged healthcare. Some even consider getting a divorce to make it affordable!

In Singapore, the advantage of a small country and a small government is that it can move much quicker. While Singapore can build quite fast, it faces a sizeable problem when it comes to manpower.

But, it is not alone in this struggle. Phillips added that manpower shortage seems to be a worldwide challenge. “In the Australian market, there’s a forecast of a shortage of 20,000 registered nurses in the next 20 years. And it extends to caregivers as well.

“The whole industry is moving towards, rather than just a care business, a service business as well,” he said.

As people pay more, their expectations also increase when it comes to facilities and services.

Phillips informed that one way to overcome the manpower shortage is to have training programmes and offer subsidies to the trainee organisations and the people undergoing the course.

Innovative models

Challenges notwithstanding, Malaysia still needs to look for the right business model.

In Australia, a resident coming into an aged care facility pays a bond. The operator then has the use of that money until the resident leaves. At which time, the money is refunded.

The rationale is that when they have their own home, they put money into their place of residence. Their place of residence is now a nursing home so it’s appropriate that they pay for, if they can afford it and as long as they’re not dispossessing a spouse of a family home to pay for it.

“What that means is that if the capital that the operator has used to build the facility and establish the facility can be replaced with those incoming bonds from residents, their return is much more palatable and that encourages investment. It also encourages operators to pay more in terms of staffing. It is one way that operators address that challenge of getting staff,” said Murphy.

Another model practised in Australia is the deferred management fee model.

This means that while the price of a unit is $950,000, incoming residents have the choice of paying the full sum upfront or to pay less when they move in and the balance when they leave and the unit is resold.

“In my experience, what I’ve seen is if operators provide potential residents with an environment that they want at a price point that’s compelling, it is absolutely grabbed by the market. The deferred management fee model is not a disincentive for residents coming in,” he added.

Mendenhall said that while there is a lot of interest from the private sector, they don’t know how to get involved.

She believes it is just a matter of finding the right model to suit Malaysia and its citizens. If it’s not retirement living, then perhaps assisted living. This is where the private sector and the government will need to be innovative to find the suitable models.

Lessons from others

A good step up for Malaysia would be to learn from others and their mistakes so that we avoid those pitfalls.

Murphy and Phillips believe strongly in ageing in place so that residents don’t have to keep relocating as their care needs change. Ideally, the facility would be where they live and within their community so that the seniors can still carry on with their daily routine.

Murphy highlighted a project in Australia where the residents can move from independent living to assisted living and dependent living as it is an integrated model in an encompassed community.

Mendelhall said such a model would work best if the facilities offering the three levels of care are built right next door to each other.

“This is very advantageous in a small town because I think people are more willing to move into these apartments because they are still in their community and they will still be able to meet friends and family for lunch or do whatever they would normally do,” she said.

Dr Jason Yap ... you need to nurture and guide the industry.

Dr Jason Yap … you need to nurture and guide the industry.

Dr Yap added that the retirement and aged care industry should be nurtured as we would our children.

“You need to nurture them, grow them, give them opportunities. At the same time you need to constrain and lead them and they will come up with something that you never thought of. My point about this is the top-down deliberate planning is only part of the story. Don’t forget that you need to nurture from the ground up. You need to nurture and guide it as you go along, so the planning process is not planning to do something; it is planning to lead and guide and manage an evolving scenario over time,” he said.

Mendenhall summed it up nicely:

“The biggest lesson is to not let politics get in the way of needs.

“How do you have these transparent conversations? How do you relay information to the right people? How do we find solutions?

“I think solutions are more important than politics and I think that is something that every country grapples with. The question is not about who is right and who is wrong, who’s saving face, am I supposed to be aligned with you or not aligned with you, which side am I on? That’s not the question.

“The question is, we understand what a common need is, so what’s the solution and where’s the evidence? We need to demand for evidence over talking points. How do we find the best solutions and prioritise those solutions over politics?”

Main photo: David Ong (left) moderating the panel discussion on ‘Lessons and Experiences from Abroad’. Looking on is Samuel Murphy, director of Knight Frank Valuations in Australia.

Where do the private sector and NGOs come in?

By BRIGITTE ROZARIO

THERE were many questions and several business models discussed for the retirement industry and aged health care at the recent Sustainable Retirement & Aged Care Conference (SRACC), organised by Kenanga in partnership with Aged Care Group (ACG).

While the one-day conference saw many questions raised, it also offered several ideas and solutions.

During the third panel discussion on Private Sector and NGOs Getting Involved in the Retirement and Aged Care Ecosystem in Malaysia, moderator Carol Yip, chief executive officer of ACG, pointed out that the budding industry faces many challenges:

  • Human capital
  • Infrastructure – It takes at least three to four years to build a purpose-built infrastructure.
  • Legal framework – What is the legal framework you need to comply with?
  • Standard operating procedures
  • Specialised care services
  • Enforcement

From a quick survey done at the conference, it was found that participants are ready to join this industry, but many are still unclear of how to go about building the facilities and providing the services.

Slow growth

Khoo Chuan Keat, director of several public and private companies and former partner and senior executive director of PriceWaterhouseCoopers Malaysia, offered his thoughts on why the retirement industry growth has been slow:

Niche market – Because it is a niche market, people are concerned that they will only be selling to a small group of people.

Business model – There is still a lack of Malaysian tested and accepted business models. So, those who are interested are not sure how to go about it. Some are taking a wait and see approach.

Khoo pointed out that while there are no tried and tested Malaysian business models, there are many in other countries that we can learn from and adapt to suit our country.

Return on investment – Business enterprises are concerned about return on investment (ROI) and wonder if they can get the same ROI as they would from building a condominium or office block.

Tax breaks – While Pemandu, Ministry of Health, Ministry of Finance and MIDA (Malaysian Investment Development Authority) are very supportive of tax breaks for those entering the industry, we will need to wait and see if the government approves the recommendations.

Legislative framework – The Aged Healthcare Act is hoped to be tabled in Parliament before the end of the year.

khoo-chuan-keat

Khoo Chuan Keat: ‘I am always a firm believer that the industry must drive the legislation, and not the other way around.’

“I’m very worried that if we leave it to somebody in Putrajaya to draft those legislations, without experience in the market place, they are likely to put everything, the worst of the lot that they can pick from all the other countries, just to cover themselves, to make sure that everything is so overly stringent that it will stifle the industry in its infancy. In this context, I am always a firm believer that the industry must drive the legislation, and not the other way around,” said Khoo.

No incentives

Tan Sri Datuk Dr Abu Bakar Suleiman, president of International Medical University, chairman and director of International Medical Colleges Malaysia, explained that aged healthcare did not just pop up overnight. The government has been talking about it for the past 20 years or so, but nothing concrete has been done.

He was the director-general of health with the Ministry of Health from 1991 to 2001.

“I think there are two things that are important in terms of funding. The health financing system has to be developed through a health fund. The proposals have been there for the past 20 years. Hopefully something will come out of this. The importance of this is, how does the coverage for the aged group be translated into the services? If you look at the policy now, we want good access, we want continuous, committed and integrated care from the living end to the end of life. So, how do we translate it?

abu-bakar

Tan Sri Datuk Dr Abu Bakar Suleiman: ‘We have to be creative, we have to be disruptive, and the care model cannot be around doctors or nurses, but based around the elderly and their families.’

“We have to be creative, we have to be disruptive, and the care model cannot be around doctors or nurses, but based around the elderly and their families.

“This is tough, but we’ve got to do that because if the healthcare system that we want to develop through a new funding system is based on the existing system, it will be a wreck. It will not be sustainable,” he said.

According to Dr Abu Bakar, the capability for technology-enabled care is already available but nobody is using or implementing it because there is no incentive to use it.

He highlighted that the truth is everything in the hospital can be brought into the home, and this is how we can keep the cost down.

“Around the world now, what we are fighting for in healthcare is safety and patient-centredness. Doctors are trying to learn this very late in the day. How do we get individual-centred services to people where they want to be. Let’s have care in the institution, care in the community and care in the home. So, there are actually market segments that we can address,” he said.

Complacency and sustainability

Tan Sri Dr Ridzwan Abu Bakar, cardiologist, executive chairman of Pacifixhealth and one of the directors of Cyberjaya University of Medical Sciences, said that the country has been slow to move so far because of complacency and sustainability.

“We are very complacent. This morning we heard speakers saying that we’re going to be an ageing nation in five years’ time. Now, that’s not a figure that’s been plucked out of the air. We will hit that figure in the year 2020. So, we’ve got five years. Have the government agencies, has the public been made aware of that – that in five years we will be defined as an ageing nation? I think that’s where we are a bit complacent.

“The other aspect about complacency is the particular setup that we have in this country. Most of us have elderly to take care of, but we also have an inexpensive way of doing it and that is by getting maids. So, many of us would hire maids, mainly from the Philippines and Indonesia. By paying for a couple of them, they would look after the loved ones at home, therefore keeping to the eastern philosophy of filial piety.

“So, that’s been the ongoing solution so far, but as we all know this system of getting maids in is going to be a big problem in the near future. Therefore, there is a demand very soon for an alternative way to look after the elderly,” he said.

According to Dr Ridzwan, the other reason why Malaysia has not moved faster into aged healthcare is sustainability, not just from a fiscal standpoint, but also from a provider’s view.

ridzwan

Tan Sri Dr Ridzwan Abu Bakar: ‘Is there a sustainable workforce that can look after the elderly that we want to take care of?’

“Those who are going to provide the services … can they sustain it? So, we’ve got to look at the workforce, for example. Is there a sustainable workforce that can look after the elderly that we want to take care of?

“Then there is the social sustainability part – the expectations of the country as to how they look after the elderly. These are the additional issues that we want to think about,” he said.

Which model?

Yip asked the panellists which model Malaysia should look at in terms of financing, where to start and who developers should partner with – the public sector, other private companies, or NGOs.

Khoo believes no one model will suit the needs of all. Malaysia will need to adopt several different models depending on the developer’s perspective and preferences. Some developers may only want to build and not manage it, in which case they may partner with an operator. Others may prefer to build and manage it. And, a third group may want to build, own and rent.

Dr Abu Bakar said that Malaysia should learn from others’ experiences and understand the model and see what we can do. But, before we decide on the business model, we first need to know what is the role of the public sector, the private sector and where does the public-private type of partnership come in.

He advised developers and operators to look at Eden on the Park in Kuching to see how they have done it and learn from them.

Khoo, who was involved in the Eden on the Park project, explained that it is a co-location model. It offers active independent living, just like any of the high-end condos in the cities. However, it also has aged-friendly features to provide residents with the opportunity to age in place. That means, if you move into that facility, you can stay there until the day you go.

According to Khoo, places like Eden on the Park focus on the lifestyle. That is their selling point.

“The people behind that project are nobody, they are not the big boys in town. They are just a group of passionate people who are prepared to put their money where their mouth is. That is where I see this industry being driven. It’s the smaller boutique developers who will say, hey, I can’t beat the big boys. If I build one condo, they are going to build five condos. So, I am going to play the game by focusing on a niche market that they may not get into yet,” he said.

According to Khoo, businesses need to cater to the middle income group. Those in the lower economic bracket will need government help, while those at the other end of the scale will be able to stay anywhere as they can afford it.

“I think the target market that we are looking at as a business enterprise is the 35% between these two groups. That itself is a big, big market for which we have very little alternatives right now,” said Khoo.

Dr Abu Bakar shared his experience with the National Kidney Foundation, where he is president of the Board of Governors.

According to Dr Abu Bakar, Malaysia is able to keep the cost of haemodialysis down because the public sector, private sector and NGOs work together.

“The public sector provides just under 40% of the services. The private sector, hospitals and clinics, provides a bit over 30%, and the balance is provided by the NGOs.

“The funding total – 70% is provided by the government. They provide the funding directly and through insurance and subsidies.

“As for the National Kidney Foundation, we raise about RM6 million a year through donations. From the RM50 per dialysis the government provides for patients who need the help, we receive the funds for that also. Whatever else we have to do, the patient pays only a bit.

“The NGOs’ contribution has a multiplier effect because most of us serving there donate our time and our expertise. I think we can learn something from this for aged care,” he said, explaining that he sees the aged care industry following a similar pattern of government, private sector and NGOs working together to cover the needs of all Malaysians.

The question of funding

Yip believes that while everyone is ready to start building the facilities, funding is still a big question mark.

Khoo expressed his opinion that there is a future in private equity.

“I’ve spoken to some private investors as well. They are also getting to be interested. The only thing is, they want to see a track record, they want to see an annuity of income. We don’t quite have that yet,” said Khoo.

He pointed out that investors also want to know what the exit strategy would be.

Dr Abu Bakar offered many suggestions to make aged healthcare more affordable.

“The issue right now is the services are not sufficiently patient-friendly or patient-centred. In fact, far, far from it. For example, can the hospital provide services outside the hospital because we have the expertise,” he said.

He suggested having video-conferencing or sending the doctor-nurse team to the home.

“That will not be an issue, but the long-term is a problem. How do we look at that? How do we fund that? And, I think we need to have a different business model for that because what you want is 24-7 and not transaction basis. That model is not there, doctors are not familiar with it,” said Dr Abu Bakar.

Dr Ridzwan gave the conference a very sobering look at the industry. He informed that despite heavy government funding, only 70% of aged care facilities in Australia are profitable. He said that 30% of them don’t make money at all.

“So, there are other problems involved that need to be addressed. In Malaysia, I think the additional problem is the legislative network. For example, if a facility is sold to an aged person, what happens when he passes away? The laws on inheritance in this country are pretty complex, depending also if you’re following the Islamic law or even the ordinary inheritance law. How do you prevent that aged care facility from passing on to a yuppie who wants to convert it into a normal condo? These are the things that we need to address. Maybe developers will say that they have the right of first refusal. I believe this is easier said than done. The laws in this country do not provide for the fact that if you set up a retirement facility that you can maintain it with subsequent generations. I think that’s another area to look at,” he said.

He pointed out that many developers may be waiting for the Aged Healthcare Act to come into force because they don’t want to run afoul of the law.

Both Khoo and Yip believe that developers need not wait for the Aged Healthcare Act, as it is merely a step down from the Private Healthcare Facilities and Services Act.

“As long as we comply with the Private Healthcare Facilities and Services Act, we will definitely comply with the lesser Act. That is what Eden on the Park has done – they opted to go for the gold standard,” said Khoo.

Dr Abu Bakar said that the aged care industry is now at the same point as the private hospitals were in the 1960s and 1970s when nobody wanted to build hospitals.

“So, who built hospitals? The doctors. Pantai Hospital was built with RM1 million by the doctors. Nobody else wanted to invest. They showed that it’s a viable business. After that, others came in.

“We are now in that stage of the game,” he said.

Sustainable retirement income – myth or reality?

MOST Malaysians are not prepared for retirement and ageing. Pension and EPF (Employees Provident Fund) will only take them so far and with the average lifespan for Malaysians estimated at 75 years, many will have to rely on family, friends and charity in the last years of their life.

Seeking to change this scenario, the panel discussion at the Sustainable Retirement & Aged Care Conference (SRACC), organised by Kenanga in partnership with Aged Care Group (ACG), delved into the topic of “Malaysia’s Financial Options for Retirement and Aged Care to Ensure Lifelong Sustainability”.

Moderator Carol Yip, the chief executive officer of ACG, outlined the current Malaysian retirement system based on the World Bank’s pension conceptual framework:

  • State
  • Pension for civil servants – mandatory
  • EPF – mandatory
  • Savings, insurance, unit trust, properties, PRS (Private Retirement Scheme), other investments – voluntary
  • Family, community, charity – voluntary

“We would like to see how financial institutions can work together because moving forward we need to have the money to sustain our retirement.

“In order to have a sustainable retirement, we have to continue saving our money. The question is how do we help Malaysians put it aside so that they will not use it until the day they need it to pay for their aged care services,” asked Yip.

Multilayered replacement income

Balqais Yusoff, head of EPF’s Strategy Management Department, said that EPF believes that in order to sustain financial security, Malaysians must have a replacement income after retirement.

“We believe people should have multiple sources of income to cover themselves, because when they become aged, they will need to have more income as they are no longer productive. So, they need to have an income to sustain their basic needs, wants, as well as the rising medical costs.

“Right now, in Malaysia, we are seeing an increase in life expectancy whereby the average life expectancy is 75. How do you accumulate your wealth during the 30-35 years of working life and can it cover the years after retirement?” asked Balqais.

Yip pointed out that there is a segment of society that wouldn’t have sufficient or any EPF savings. This includes homemakers and the self-employed who often do not make contributions.

Dato’ Steve Ong, chief executive officer of the Private Pension Administrator Malaysia (PPA), which is the independent central administrator for the PRS, said this is where savings comes in.

“The big consequence is not that at age 60 you stop work; it’s that you stop earning. The minute you stop earning, your income stops. That is the crux of the matter.

“All of us who are employed are gainfully earning our income and that supports our housing, healthcare and lifestyle.

“So, when you stop working, it means you stop earning and you stop that income stream. You need that to have savings to generate a passive replacement income. We have to educate the public to really get the message across that EPF savings at the moment isn’t even enough. For those who withdraw their EPF money end up spending it all within five years, while their retirement might go on for 20-25 years,” said Ong.

He explained that this is where PRS can help as it offers Malaysians a way to save their money for retirement.

“PRS is not a product. It is a voluntary national scheme. It addresses the need to provide a formal voluntary pillar so that people can have the confidence that it is safe, regulated, and provides a system for private employees who have EPF but still need to top up; for civil servants who retire and have pension which is still insufficient; and for the self-employed who may not be contributing to EPF or putting money into the bank.

“We have various savings vehicles in the country. The question is, are they designed specifically for retirement? If not, then the issue is simply this: Most of the money that people save is in the banks. What do they do? It’s like a giant cookie jar. When they need money, they take it out. They take, take, take and what’s left is for retirement. It’s inadequate; it’s insufficient; and it’s not sustainable,” he said.

What about the role of insurance? Anusha Thavarajah, chief executive officer of AIA, said that 20 years ago, Malaysia was still a very young society and one where the family network was very strong. Because of this, we never worried about retirement. We assumed that our children would look after us. However, society has changed a lot in the last 25 years, and the baby boomers increasingly want to take care of themselves as they age instead of relying on their children.

Quoting Martin Luther King, Jr., Anusha said, “It’s the quality and not the longevity that is more important in people’s lives.”

According to her, it is important to create awareness on the importance of having enough.

“Today, what we want to do is make people aware that it’s important that they have enough. We’re teaching our distributors that when they meet customers and friends, they have a social obligation to make sure that their friends and family are adequately protected,” said Anusha.

Cohesive system

Yip asked the panellists if financial institutions can work together to make it easier for the elderly, so that when the money is needed, it will almost automatically pay for the care and services. This way, the elderly don’t have to think about which stream to get their money from – EPF, PRS, insurance or unit trust – as all of these would work together seamlessly to pay for the elderly’s needs.

According to EPF’s Balqais, the government is trying to establish a national social security task force to look at an integrated ecosystem. “That will cover not just healthcare, but also basic income security for working aged people as well as care for the aged. It will be a concerted effort that will require working with employers, employees, NGOs, academia as well as financial institutions to develop more products for pre and post-retirement.

“The national social security task force will look at this whole ecosystem and work with all the stakeholders to minimise duplication of efforts currently being undertaken by various agencies and also duplication of benefits. It will address basic poverty eradication and guarantee a comfortable lifestyle, especially for the aged,” said Balqais.

Toh Puan Dr Safurah Jaafar, director of Family Health Development Division with the Ministry of Health, said currently more than 70% of the elderly are sourcing medical care from the government.

“That limits their choices in terms of care and facilities. I think, if only they have the savings then their choice is bigger. How do you facilitate that?” she asked.

According to AIA’s Anusha, more and more Malaysians are buying private health insurance, which has extended its coverage in recent years.

“Originally, the insurance cover expired at the age of 60, then it became 70. Today, people are covered till the age of 100. So, basically people are covered for life. I think it comes back to awareness and making people understand that they can buy healthcare insurance,” she said.

Explaining one of AIA’s products, Anusha said that the public can buy a policy where they pay very minimally for the premium while still employed because their employer has group insurance coverage for all employees, so they wouldn’t need much cover then. But, when they retire, the cover then drops down to the first level.

“So, in post-retirement you continue to have this insurance coverage that you bought yourself which didn’t cost much initially and you continue to be covered until the day you die,” she added.

Anusha believes it all boils down to raising awareness so that the public knows what products are available to help them save for retirement and which ones offer them the best coverage in old age.

The public also needs to be educated on how to accumulate money while working and the decumulation after retirement. PPA’s Ong believes that it boils down to money management.

“As to who is going to manage this money … it’s very personal. I think most of us would like to do it ourselves until we can’t. In the case of when you can’t, because you are disabled or have dementia or some other serious illness that prevents you from making a conscious decision, the good thing about our society is we still have our family members.

“I think, that is our first line of defence because we have family members whom we can trust. Failing which, we would have to go to an outside party called a trustee. If you go to a trustee, then there are pros and cons. The advantage is that you can define what the trustee is going to do with your money, the disadvantage is the cost of doing that and losing flexibility because basically you are giving ownership of your finances and properties to an outside party,” he said.

Suitable model, products

In developed countries, the decision of who should manage your money is taken out of the equation. According to Yip, in those countries, the government takes on the responsibility of managing the money for the people.

“When you need it, they see how much you can afford to pay. Then, the government either subsidises or pays 100%,” said Yip.

She questioned if it is possible to have a similar system in Malaysia, with a central administrator working with the financial institutions.

Balqais explained that that type of system is quite different from the one we have adopted in Malaysia, and while it has obvious advantages, there is also a high price to be paid.

“In Scandinavian countries, for instance, the rights of the people are protected at various levels in terms of healthcare, education and maternity. So, when a person retires, they have a sustainable income because the income will come for life.

“But, in Malaysia, we are operating under a defined contribution system whereby there are no defined benefits. In most developed countries, there are defined benefits where you know you will be getting some sort of pension but that system has some concerns in terms of financial sustainability because of the demographic shift.

“But at the same time we also see a trend of high tax rate. In UK for instance, it is 40% and in some Scandinavian countries it is 60%. Are Malaysians ready to pay that kind of high tax regime to finance a defined benefits contribution system?” she asked.

Another option that the financial industry in Malaysia might look into is reverse mortgage since Malaysians still believe in buying property.

Yip questioned if it is possible for those who have properties to use reverse mortgage to pay for their care in their advancing years. According to her, this is one of the products that Singapore is trying out.

Anusha pointed out that reverse mortgage, which is currently not available in Malaysia, has its pros and cons.

Sharing her experience in the UK about 20 years ago, Anusha said a lot of elderly were real estate rich but cash poor there. They would buy a product called equity release where the insurance company would pay them about 70% of the value of the property. Some of the aged who took equity release used the money to enjoy the remaining years of their life. However, there were also cases which did not have a happy ending as the elderly failed to inform or explain their decision to their family members. When they died, their family members became very upset that the insurance company suddenly owned their parents’ houses.

Nonetheless, Anusha believes it is something that can be looked into here. “Perhaps back it with an annuity for life so you don’t give out a lump sum but have an income for life.

“Then when they pass away, the remaining value of the property goes back to the family. But it’s important that family members understand what’s happening,” she said.

While she believes reverse mortgage is a good product, Balqais reminded the floor that we have to look at it from a cultural context. “Are we ready to not have home ownership? Culturally, people want to own a house. At the same time, are financial institutions ready to offer this kind of long-term payment? In terms of take-up rate, we have to question and study that because the public may not be as prepared as the financial institutions,” she said.

PPA’s Ong agreed with Balqais, saying that for most Malaysians, our home is our biggest asset. He also believes that reverse mortgage works only if you have a debt-free property.

“The other thing about relying on your property to fund your retirement is that it’s not a surety because property values may fluctuate, depending on the location you are in and the property cycle. That’s something we have to keep in mind,” said Ong.

Conclusion

Having listened to all the possible financial solutions, Dr Safurah said she feels hopeful about the future of the elderly in our country. However, obviously a lot more needs to be done and inclusivity should be a priority.

“We say the product is not the main focus but I think at the end of the day, it still is because insurance companies do focus on very defined items that you can reimburse. We may lose a big portion of some groups of the aged who are not supported. Unless they are very ill, then only the insurance companies come in.

“How about those who are no longer earning but need insurance support to keep them well and prevent them from falling sick? I hope that that kind of product is something that financial companies can look at,” she said.

While Malaysia needs to find the right products and model to help its citizens save up for their retirement years, there’s no denying that awareness and education are equally important.

According to Balqais, the root cause of people not having sufficient savings is financial literacy. “The financial literacy rate in Malaysia is still very low. People do not understand about insurance – why do I need to pay when I’m not sure I’m going to get the money back?

“So, when we speak at public briefings, members of the public say they don’t want insurance because they would have more money without it, but in the event of financial shock or distress because of medical illness, they do not have sufficient savings,” she said.

She talked about EPF’s Retirement Advisory Services which offers free financial planning to the public. She hopes that this will help raise the financial literacy rate in the country.

It is hoped that with financial planning, the public will be more aware of the need to save.

As Ong pointed out, “There is no shortcut to saving for retirement. While you put money into EPF, you will still have to top up. Save more. The idea of saving more for retirement is that the money is earmarked for retirement. It’s not buying property for investment for retirement. Whether it really is earmarked for retirement is debatable. While the concept is good, you really need to have a earmarked retirement fund so that it is sufficient and it will sustain your retirement life.”

Main photo: ACG CEO Carol Yip (left) moderated the panel discussion. She was joined by panellists Toh Puan Dr Safurah Jaafar and Dato’ Steve Ong.

Stakeholders discuss building a retirement industry

RETIREMENT is not just about how much you have when you stop working. It is about your next phase of life,” said Ismitz Matthew De Alwis, executive director and chief executive officer of Kenanga Investors.

“What will you do for the next 20 years after retirement?” he asked the packed ballroom at the Sustainable Retirement & Aged Care Conference (SRACC).

Organised by Kenanga in partnership with Aged Care Group (ACG), the conference, held at the Majestic Hotel in Kuala Lumpur last week, saw representatives from the government, private sector and non-governmental organisations (NGOs) coming together for a day of discussions, networking and seeking solutions.

“Retirement is not something dull. It is not about the time when you stop working, go to day care and nursing home, while waiting to die. Retirement is the best phase of your life. It’s when you enjoy. Let’s get some colour into retirement,” he said.

He explained that even in retirement there are different stages with the last stage being when you would need more care.

There are many topics that can be discussed regarding retirement – from the financial side of things to where to live, what to do, and how to manage everything.

“This is a big topic to cover. We have a lot of questions. We hope from today we can start sharing that retirement is beyond numbers. Retirement is an industry that we need to take seriously, along with the whole ecosystem that comes with it,” said De Alwis.

The one-day conference featured three panel discussions.

The first discussion saw representatives from the civil service, private sector and government agencies talking about Malaysia’s financial options for retirement and aged care to ensure lifelong sustainability.

Can Malaysians afford to retire and how will they pay for their aged care? Will it come from the government, their pension, Employees Provident Fund (EPF), insurance, Private Retirement Scheme (PRS), savings, or all of these? Is it possible to have an integrated management system for all these, so that it is easier for Malaysians to pay for services?

The panellists explored this subject and even took questions from the floor.

The second panel consisted of foreign representatives who shared their experiences in retirement and aged care in Singapore and Australia.

The third panel discussed private sectors and NGOs getting involved in the retirement and aged care ecosystem in Malaysia.

While the conference did not conjure answers for all questions, it did start a lot of conversations and provided much food for thought.

Set the ball rolling

Panellist Tan Sri Datuk Dr Abu Bakar Suleiman, president of International Medical University, said, “In the 1960s and 1970s, no business wanted to build hospitals. So, who built hospitals? The doctors. Nobody else wanted to invest. They showed that it’s a viable business. After that, others came in.

“We are now in that stage of the game.”

While there are parties who are keen to get into the industry, many seem to be adopting a wait-and-see attitude and trying to find the best business model first.

“If we don’t build, we don’t have an industry and it becomes exclusive. When there are participants in the industry, then things will come to a palatable price. That’s what is important.

“At this moment the industry is in its infancy. We need to develop the whole ecosystem,” explained Kenanga’s De Alwis.

According to him, SRACC was held to get people from the private sector, public sector and NGOs to come together to look at the industry from a macro level and to look at building an integrated ecosystem, rather than working in silos.

“That’s why this conference is called Sustainable Retirement & Aged Care Conference and not a retirement conference. We are talking about the third phase of life, the things that we need to do to make it a colourful retirement.

“This is the next thing to come. It is going to be an industry. When the time comes, there are things that need to be catered for in this industry and we need the support of all stakeholders.

“As you can see it’s a huge ecosystem that we need to work on. We talk about government policy makers, private healthcare institutions, the entrepreneurs, the financial institutions like Kenanga, and the educational and training institutions. I think this basically will make up a sustainable aged care infrastructure,” said De Alwis.

Projects moving forward

In his keynote address, Fabian Bigar, Director (NKEA Healthcare) of Pemandu (Performance Management & Delivery Unit), spoke on “Delivering Transformation for Retirement and Senior Living in Malaysia”.

He provided the background of retirement and senior living in the Pemandu NKEA (National Key Economic Area) lab.

According to him, it is estimated that the retirement industry would create about 10,000 new jobs and RM1.7 billion in terms of GNI (gross national income) in the year 2020, when Malaysia becomes an ageing society.

After the completion of the lab, Pemandu presented its findings to the Malaysian Cabinet. Apart from the Entry Point Projects, Pemandu also requested for:

  • New act for aged care;
  • Reverse mortgages;
  • Transformation of existing old folks homes;
  • Insurance coverage for long term care and mobile services;
  • Financial incentives for the industry;
  • Trustee to manage finances for the senior citizens who are in homes; and
  • New skills standards.

“We received agreement in principle for all of this, of course subject to further discussions with the various agencies. Not everybody is moving at the same speed, so we have to leverage on those who can work faster,” said Bigar.

According to him, the Private Aged Healthcare Facilities and Services Bill will be ready for tabling at Parliament by the end of the year. However, as there are many other items waiting to be tabled as well, the Bill might only see the light of day next year.

While waiting for the Bill to be tabled, Pemandu has been working on the regulations.

“We started this year, so that when the Bill comes on stream we can enforce it in a short time,” explained Bigar.

In addition, the Department of Skill and Development has come up with the National Occupational Skills Standard (training syllabus) for the training of caregivers.

The Malaysian Investment Development Authority (MIDA) has been looking at incentives for the industry to be gazetted as a promoted industry.

While the Department of Town and Country Planning has developed “Physical Planning Guidelines for the Elderly Facilities” which will serve as a guide for the planning and designing of a senior living facility.

“These four agencies are already moving. As for the others, for example, finances and insurance, we will make sure that these things are put in place next year.

“Obviously, there is a lot more to be done. I hope at this conference we will find some clues, if not answers, on how we can move this agenda forward,” he added.

Innovation

De Alwis said the takeaway from the conference is that if you are a business owner, an NGO or individuals needing helping or who have questions related to the elderly, you would now know who to contact. ACG is positioning itself as a platform for all parties to work together towards elevating the retirement industry.

CareTRUST was derived to provide an avenue for those in the financial line to help clients manage the accumulation of their money and then the decumulation after retirement when they need to pay for services and facilities.

This collaborative effort sees more than 12 unit trust companies, four insurance companies and seven PRS providers on the bandwagon so far.

With ACG as the Care Administrator, CareTRUST would also see to it that the client’s wishes are fulfilled in terms of how they want to be cared for and where they want to live, when they are no longer able to execute these decisions for themselves.

This is just one of the new products targeted at retirees. De Alwis added that the retirement industry will spur product innovation. “It is something that we will continue to search for at Kenanga, be it within our group or working with various partners. It doesn’t matter if the money goes here or there. At the end of the day, we are enlarging the pie.

“We just need people who are brave enough to join in to build the industry. It’s not difficult and it’s not just to cater to one part of it. It’s a big part of the economy. It also can be very profitable if it’s done correctly. It’s an industry by itself.

“We need to create a retirement industry, then everything will come into play. There are various programmes now like Malaysia My Second Home, but everything needs to link together. We have to look at the whole ecosystem of retirement.

“On top of that, when we have more retirement products and services, of course, the cost will come down. It becomes a commodity. But, at this moment, no one dares dabble into it. If you look at it, five years down the road is a very short time, but in 10, 15 years, this will be a booming industry.

“We are quite excited. It creates more dynamism in terms of how we treat this product-wise and services-wise,” said De Alwis.

ACG chief executive officer Carol Yip pointed out that some parties in the country are already building facilities and offering services for retirees. However, demand is still more than supply. To speed things up in time for 2020, more players need to enter the market place. This would reduce the cost, and these facilities and services would then be more affordable to the masses.

Conclusion

Speaking to reporters, De Alwis said that this year’s conference was more of an introduction to the infant industry, and next year should see a drill down to more intense topics.

“We hope to see that there is growth and development, and we will be able to share more, get more speakers and expertise coming in to provide more advice.

“Once retirement becomes an industry, Malaysians will take it more seriously and the whole ecosystem will fall into place. Our theme today is ‘A shared synergy towards an integrated ecosystem’. For an integrated ecosystem all the stakeholders have to come together in their own way. Like a jigsaw puzzle, all the pieces must fit together,” concluded De Alwis.

Main photo: Ismitz Matthew De Alwis, executive director and chief executive officer of Kenanga Investors, presenting his keynote address at the Sustainable Retirement & Aged Care Conference.

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