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In this chapter, the same educational levels are used since they are three educational attainments of the majority of the female labour force in Malaysia, namely SPM, Diploma and Degree (DOS, 2008a). Other assumptions used in this chapter, such as age started working, salary grade and age at disruption are similar to those used in Chapter 6 (refer to Chapter 5, Section 5.4). In addition, the scenarios analysed in this chapter are similar to those in the previous chapter (Chapter 6), however, this chapter also focuses on flexible parameters in order to investigate at which level or rate the parameters could result in a replacement rate level of 40% for different levels of education.

The simulation in every scenario includes both full employment and 5 years disruption during employment. In Scenario A, the assumptions for flexibility of retirement age are explored from the perspective of the current statutory retirement age in Malaysia, which is 58, increased from 56 in 2009 (EPF, 2009a). As previously indicated, the EPF contribution rates in Malaysia was reduced to 20% due to the global economic downturn (EPF, 2009b). It is therefore important to know on the level of contribution that is needed in order to achieve a 40% of replacement rate level.

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In the second scenario (Scenario B), the contribution rates used are: (i) 20%, (ii) 23%, (iii) 25% and (iv) Age-profile contribution. The rate of 23% was chosen in the simulation as this percentage was commonly used for the EPF during January 1996 – March 2001, April 2002 – May 2003, and June 2004 – December 2008 (EPF, 2008). For the 20% contribution rates, 12% is contributed by the employer and 8% from the employee; whereas for 23%

contribution rates, 12% is contributed by the employer for both rates and 11% is from the employee. On the other hand, for 25% contribution rates, it is assumed that 13% is contributed from the employer and 12% from the employee.

The Age-profile type of contribution rates were based on Singapore’s Central Provident Fund (CPF) rate (CPF, 2009). However, as discussed in Chapter 5, Section 5.5.2, it was not possible to use the same rates as the CPF’s in the simulation because they are too extreme and exceed Malaysians’ income capability. The Age-profile type of contribution rates used in the simulation were therefore midway between the CPF rates and the current rates used in Malaysia and are shown in Table 7.1 below.

Table 7.1: Age-profile type of contribution rates Age Employer (%) Employee (%)

35 and below 15.00 13.75

36-45 15.00 13.75

46-50 15.00 13.75

51-55 13.50 12.25

56-60 9.50 8.25

61-64 5.50 4.25

Above 65 4.50 3.25

Source: Author’s assumption

The assumptions in Scenario C relate to the amount of the pre-retirement withdrawals. The total EPF contributions are credited to two accounts: Account 1 which consists of 70% of the whole amount, and Account 2, which consists of the remaining 30%. EPF members are

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allowed to withdraw from Account 2 for reasons which include purchasing a house, paying education fees and medical expenses (refer to Chapter 2, Section 2.3.1). The most common reasons for making withdrawals during employment are housing, education and medical expenses (EPF, 2009a). Although such withdrawals may ease financial distress at the time they are made, they do not seem to fit the mission and vision of the EPF, which is to provide the best retirement savings scheme. This is because the higher the amount withdrawn during employment, the lower the accumulated amount left in the account to be used for retirement purposes. In this chapter, pre-retirement withdrawals are assumed to be made in (i) single or (ii) two-phase withdrawals. In the single phase, a withdrawal of 30% of the total of the fund is assumed to be made, whereas in the two-phase withdrawal, the first withdrawal is assumed to be 20% and the second is assumed to be 10% of the total from the fund.

Finally, Scenario D explores the interactions between sets of factors, i.e. between the retirement age and the amount of pre-retirement withdrawals, between the contribution rates and the retirement age, and between the amount of the pre-retirement withdrawals and the contribution rates, in order to ascertain how changes in one factor will affect the other.

However, the results and findings are only discussed for Degree graduates because based on the findings in Chapter 6 (refer to Tables 6.2 to 6.10), those attaining a Degree face a higher risk of not achieving the standard replacement rate level during retirement than those attaining SPM or Diploma qualification. It should be noted that the findings do not show that those with SPM qualification achieve a higher income during retirement than Diploma and Degree holders, rather, they show that women with Diplomas and Degrees have difficulties in achieving the minimum replacement rate level due to higher earnings during employment that are expected to be replaced during retirement (refer to results in Table 6.2 and 6.3). For results from the simulation worksheet, refer to Appendix G.

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A summary of the scenarios explored in this chapter is presented in the table below.

Table 7.2: Summary of the scenarios used in Chapter 7 Scenario Assumptions

Scenario A (results in Table 7.3 and 7.4)

The impact of increasing retirement age:

a) Retirement age starts from 58 years onwards (i) Full employment

The impact of changing the amount of pre-retirement withdrawals:

a) Single 20%, 25% and 30% pre-retirement withdrawal

b) Two phase pre-retirement withdrawals with (i) Full employment 15% withdrawal for each phase (ii) 5 years disruption c) Two phase pre-retirement withdrawals with

20% for 1^st and 10% for 2^nd Scenario D

(results in Table 7.11 to 7.16)

Interactions between sets of factors – only for Degree holders a) Retirement age and pre-retirement

withdrawal (i) Full employment b) Contribution rates and retirement age (ii) 5 years disruption c) Pre-retirement withdrawals and contribution

rates

Source: Author’s summarised scenarios for Chapter 7

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