The performance of private retirement scheme (PRS) in Malaysia and its determinants
The world is ageing. The elderly population will be more than 1.5 billion by 2050, equivalent to 20% of the world’s population. Malaysia too is facing the same phenomenon. Meanwhile, the statistics of the poor elderly in Malaysia showed an increasing trend, whereby several studies established...
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| Format: | text::Thesis |
| Language: | English |
| Published: |
2023
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| Summary: | The world is ageing. The elderly population will be more than 1.5 billion by 2050,
equivalent to 20% of the world’s population. Malaysia too is facing the same
phenomenon. Meanwhile, the statistics of the poor elderly in Malaysia showed an
increasing trend, whereby several studies established a positive relationship between
age and poverty (Vaghefi, 2016). Numerous findings showed that the Malaysian
Employees Provident Fund alone is not enough to ensure a sustainable retirement.
Pensioners are having inadequate funds, unprepared to face retirement, and at risk of
decreased standards of living during retirement age. Private Retirement Scheme (PRS)
is identified as a complementary retirement saving to the Employees Provident Fund
(EPF). Ideally, private retirement savings such as PRS, will support retirement
sufficiently and sustainably in Malaysia. However, the current situation showed
indications of uncertainty and low returns from the PRS investment, whereby 40% of
PRS funds reported returns of below 3% (Morningstar, 2017). Therefore, this research
aims to investigate the performance of the Islamic and conventional PRS funds in
Malaysia since their inception from 2012 to 2018. This research also aims to evaluate
the determinants of PRS performance in terms of short and long-run (co-integration)
relationships. Last but not least, this research aims to compare the performance of
Islamic funds with conventional PRS funds. The data collected were from all PRS
providers in Malaysia involving 64 funds. This study employed the Capital Asset
Pricing Model (CAPM) by using the Sharpe and Treynor Ratio to calculate the
performance of the PRS. Meanwhile, the macro and microeconomics data were applied
for PRS determinants estimations by using the dynamic model, General Method of
Moments Analysis (GMM) methodology. Analysis methodsinclude the CAPM, Sharpe
Ratio Model, Treynor Ratio Model, Static Model of Ordinary Least Squares (OLS),
Random Effect (RE) and Fixed-Effect (FE), and Dynamic GMM with and without time
dummy analysis. The study discovered the PRS performance in Malaysia since its
inception until 2018 was weak, below expectation, and unsatisfactory. The influence of
determinants, such as past performance, Kuala Lumpur Composite Index (KLCI), and
EPF dividend were positively correlated with PRS performance. However, the
determinants of the Treasury Bill Interest Rate, PRS dividend paid, Age of funds, and
Islamic funds had a negative impact on the PRS performance. The findings of this study
provided important input to policy planning and policy implementation, especially on
the government tax exemption, incentive and subsidisation on the PRS investment and
contribution. |
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