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Scenario C explores women with disruptions during employment and is divided into four sub-scenarios. Women in the first sub-scenario only disrupt their career life once, by being out of employment for 10 years. In the second sub-scenario, women face two disruptions in their career life as well as a total of 10 years out of employment. However, the gaps for the two disruptions in the second scenario are 5 years each, and the age in and out of employment is selected within the age range assumed earlier. Next, women in the third and fourth sub-scenarios are assumed to disrupt their career life for 7 and 5 years.

Figure 6.3: Graph: Scenario C (Ch 6): Employer’s yearly contribution for SPM holders with 10 years out of employment, 1 disruption

Source: Author’s calculation -

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

18 22 32 40 50 58

Amount (RM)

Age

SPM -Employer's yearly contribution, 1 disruption

Yearly Contribution

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Figure 6.4: Graph: Scenario C (Ch 6): Employer’s yearly contribution for SPM holders with 10 years out of employment, 2 disruptions

Source: Author’s calculation

Figure 6.5: Graph: Scenario C (Ch 6): Employer’s yearly contribution with 7 years disruption

SPM - Yearly Contribution, 2 Disruption

Employer's Yearly

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Figure 6.6:Graph: Scenario C (Ch 6): Employer’s yearly contribution with 5 years disruption

Source: Author’s calculation

Figure 6.3 and Figure 6.4 above show the annual contribution patterns for SPM holders with 10 years out of employment. Figure 6.3 simulates for SPM holders with only one disruption during employment, whereas Figure 6.4 shows two disruptions during employment. On the other hand, Figure 6.5 and Figure 6.6 above show the annual contribution pattern for different educational levels attained with 7 and 5 years disruption during employment.

Based on the results in Table 6.7 and 6.8 (10 years out of employment), the replacement rate levels for all different levels of education with disruptions in the range assumed earlier are

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Apart from that, the replacement rate levels for women with Diploma or Degree qualifications ranged from 23% to 30%. The results presented in Tables 6.9 and 6.10 also shows that under all of the scenarios tested women were out of poverty, none of the results within the assumption range could result in a comfortable standard of living as the replacement rate level is less than 40%.

The number of employment years is also important in order to avoid poverty and to achieve a 40% replacement rate level. The disruption of 10 years, although divided into two 5-years disruptions (refer to Figure 6.4 and 6.5), still results in a replacement rate below 40% (refer to Table 6.8). This shows that the more often disruptions women face in their career life, the lower their last drawn salary and estimated monthly retirement income would be. For example, SPM women with 10 years disruption occurring once throughout their employment years are expected to receive their last drawn salary of RM 2,746.35 (refer to Table 6.7).

However, SPM women with 10 years disruption occurring twice (5 years gap for each disruption) throughout their career life tend to receive a lower last drawn salary at RM 2,679.80 per month (refer to Table 6.8) and resulting a lower replacement rate level.

Based from the overall results under this scenario, women in Malaysia with any education level should avoid any disruptions more than 5 years during their employment life in order to achieve a higher replacement rate level. This is because the higher the number of years out of employment, the lower the accumulated amount in the EPF, and the lower their estimated monthly income will be at retirement.

147 Table results for Scenario C

Table 6.7: Results: Scenario C (Ch 6): 10 years out of employment with one disruption Age start

Table 6.8: Results: Scenario C (Ch 6): 10 years out of employment with two disruptions Age start

retire EPF Poverty Level Replacement

Rate Level

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Table 6.9: Results: Scenario C (Ch 6): 7 years out of employment with one disruption Age start

retire EPF Poverty Level Replacement Rate Level

Table 6.10: Results: Scenario C (Ch 6): 5 years out of employment with one disruption Age start

retire EPF Poverty Level Replacement Rate Level

149 6.6 Chapter Summary

Women’s life expectancy in Malaysia is longer than men’s and the retirement age is 58 for both. This leads to women being categorised as a group that is prone to poverty in old age.

Moreover, from the scenarios tested, it is difficult to maintain the same standard of living after retirement as during employment with the current pension system in Malaysia.

With longer life expectancy, women are expected to have to spread their savings over more years in retirement than men. However, disruptions or gaps during their employment years may happen due to marriage, childcare responsibilities or taking care of the elderly members of the family, and these result in fewer savings in the accumulated fund (Berger and Denton, 2004). Fewer employment years with fewer savings do not guarantee a comfortable life after retirement, and it is difficult for those with disruptions in their career life or who exit the labour force at an early age to achieve the minimum replacement rate level at 40%. This is proven with the simulation results presented in this chapter (refer to Tables 6.4 to 6.10)

Three different educational levels with different salary grades were used in this study, and the replacement rate levels and poverty level were analysed based on the predicted monthly annuity. The replacement rate level must be at least 40% to achieve a comfortable standard of living after retirement set by the ILO (ILO, 2009), and the predicted income should be more than RM 691 per month to be out of poverty (Masud and Haron, 2008).

From the results, women with disruptions do not seem to have the prospect of having a comfortable standard of living after retirement. Their replacement rate levels were below the standard level set by the ILO, and contrasted with findings reported by Evans and Falkingham (1997) (refer to Chapter 4, Section 4.3). In the UK, those working part-time or

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with disruptions or gaps during their employment had higher replacement rate levels than those with full employment years until retirement. This may be due to the different pension plans in Malaysia and the UK: where Malaysia uses the Defined Contribution Pension Plan whereas UK uses the Pay-As-You-Go plan that is, a Defined Benefit Pension Plan. However, similar results were found among low-paid workers who had the highest replacement rate levels, reflecting the fact that it is easier to ‘replace’ a lower salary than a higher one.

Based on the overall results, only women with disruptions, and those who exit the labour force at an early age and never return, have a high risk of poverty (refer to results in Table 6.4 to 6.10). The result also shows that the length of interruption does affect their retirement income; having shorter gaps during employment could result in a better replacement rate level than having a longer gap. However, the predicted monthly income at retirement is above the poverty level; either women with one or two disruptions during employment, except for those who decide to stop working at an earlier age (refer to Tables 6.4 to 6.6).

The results also indicate that women employees who are under the Pension Scheme and work for a minimum of 30 years are capable of achieving an extra 20% to the minimum replacement rate level (i.e. 60%) compared to those under the EPF (refer to Tables 6.2 and 6.3). This can be seen from their monthly pension, although its calculation did not consider the inflation and longevity risks that may affect one’s future purchasing power and standard of living as it is a Defined Benefit Pension Plan (refer to Table 2.7). On the other hand, those who opt for the EPF are more exposed to financial risk due to inconsistent returns, disruptions in their employment years, the longevity risk and the disadvantage of making pre-retirement withdrawals (refer to Chapter 2, Section 2.3).

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In summary, women with disruptions in their career life could face the risk of not having a comfortable life after retirement. However, such risk would depend on the number of employment years and their last drawn salary. The longer the disruptions they have had during their employment years, the fewer years they work, and the fewer savings they have at retirement, and leads to higher financial risk they face in old age. Therefore, women who intend to have disruptions and gaps during their employment years or to exit the labour force early due to childbearing or family obligations should ensure they have an appropriate amount of savings in their fund in order to maintain the minimum replacement rate level and to be above the poverty level at retirement later on. The Government, on the other hand, should revise the current pension system in order to accommodate the types of scenario simulated in this study that may occur in women’s career life.

The next chapter (Chapter 7) discusses on the impact on women’s income in later life of changes in flexible parameters such as retirement age, contribution rates, and the amount of pre-retirement withdrawals.

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