Scenario A analyse simulations for men and women with full employment years, no disruptions throughout their career life. Figure 6.1 below shows the annual contribution contributed by employers into Employees Provident Fund (EPF) account. The graph shows contribution for different levels of educational attainment from the age they start working until retirement. It also shows that educational qualifications influence the contributions made both by employers and employees. Even though SPM and Diploma holders start working earlier than Degree graduates, the contributions made by the latter are higher than
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those made by the other two categories, as highly educated employees tend to receive higher salaries that lead to higher amounts of savings for retirement. Moreover, since people in this category are employed full-time until retirement, there are no gaps in making contributions for their retirement income.
Figure 6.1: Graph: Scenario A (Ch 6): Employer’s yearly contribution with full employment
Source: Author’s calculation
Full employment years simply mean that the employees are able to make full contributions from the first month they started working until the final month upon reaching retirement age.
Table 6.2 and Table 6.3 below show the result of outcomes under this scenario of a full working life for the three different types of women and men with different educational levels and different starting employment ages, assuming they do not make any pre-retirement withdrawals from the fund until retirement. The replacement rate level for both women and men is above 40%, except for women with Diploma and Degree qualifications. More specifically, the replacement rate level for men SPM holders is 49.38% compared to 46.67%
for women. For men who are Diploma graduates, the replacement rate level is 41.23%,
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however for women who are Diploma graduates, the replacement rate level is 38.97%. A woman with a Degree qualification who starts working at an average age of 24 has the lowest replacement rate level of 34.02%, while men with a Degree qualification have a 2% higher replacement rate level (36%). The total of 34 years of employment, which is 6 years and 2 years less than that of SPM and Diploma graduates, respectively, and retiring with a high last drawn salary, makes it more difficult for Degree holders to achieve the standard replacement rate level. This does not mean that their retirement income is less than that of those with SPM and Diploma, but it is difficult for them to maintain a standard of living similar to before retirement.
Both men and women with the highest replacement rate level are those who start working at 18 years old and retire at the statutory age of 58. Although they work longer than Diploma and Degree graduates and their replacement rate level are higher, their estimated accumulated EPF fund is the lowest since they have a low basic salary and the lowest last drawn salary.
Since a Degree graduate earns a higher salary and should have a higher amount in the fund at retirement, it is relatively difficult to achieve at least 40% of their last drawn salary. The combination of fewer working years with a high last drawn salary means that the current pension system does not guarantee that women and men Degree graduates will achieve 40%
of their replacement rate level.
By contrast, men and women under the Pension Scheme (PS) with a minimum 30 years of service are guaranteed to achieve a replacement rate level of at least 60% of their last drawn salary. In this scenario, both men and women with 40, 36 and 34 years of service and across different educational levels, are guaranteed to achieve a replacement rate level of at least 60%
of their last drawn salary (refer to Table 6.2 and 6.3). Moreover, under the Pension Scheme,
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men and women receive the same amount at retirement, depending on the number of employment years and their last drawn salary. This shows that the retirement income for employees working under the Pension Scheme is more secure than for employees under the EPF, as the former are entitled to 60% of their last drawn salary, which is 20% more than the standard replacement rate level set by the ILO (Samad and Kari, 2007).
On the other hand, since employees under the EPF were assumed to take an annuity in this study, the monthly annuity differed between men and women. This is because annuity calculation includes longevity factors which mostly affect women, due to the longevity differences by gender (refer to Chapter 3, Section 3.5 discussing on women and longevity issue). Thus, even though the accumulated amount at retirement may be the same for men and women, women can be expected to receive less in the long-term due to having to spread the accumulated amount over more years.
From the overall result for Scenario A, it can be seen that men can expect to receive a higher monthly income and maintain a more comfortable life at retirement than women. The results in Table 6.2 and Table 6.3 show that both men and women can be categorised as living out of poverty when their replacement rate levels are from 34% to 50% of their last drawn salary, although this scenario was based on no pre-retirement withdrawals being made. However, it is still vital to achieve a replacement rate level of 40% or above in order to have a comfortable standard of living at retirement set by the ILO, especially women with Diploma and Degree since they may have difficulty in maintaining the same standard of living after retirement as before retirement.
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The amount in their fund would be reduced if a certain amount were to be withdrawn from their fund during employment years. However, it is questionable whether it would affect the poverty level and replacement rate if the accumulated amount in the fund is reduced. This will be explored and discussed further in Chapter 7.
137 Table Results: Scenario A
Table 6.2: Results: Scenario A (Ch 6): Women with full employment and no withdrawal Age start
Table 6.3: Results: Scenario A (Ch 6): Men with full employment and no withdrawal Age start
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6.4 Scenario B: Exploring Disruptions – stops working early; withdraws estimated