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This scenario explores the effect on the replacement rate level and the estimated monthly income at retirement of increasing the retirement age from the current 58 to 65 years. The results in Table 7.3 and Table 7.4 show the replacement rate levels and the estimated monthly income for the three educational levels, namely, SPM, Diploma and Degree, and for people who retire at different ages. Women with different educational levels are assumed to make a 20% contribution to the retirement fund (EPF) every month, and no pre-retirement withdrawals are made throughout their employment years.

7.3.1 Full Employment

Table 7.3 shows the results for the estimated monthly income and replacement rate level for three educational levels: SPM, Diploma and Degree.

Table 7.3: Results: Scenario A (Ch 7): Retirement age with full employment

SPM Diploma Degree

EPF RR EPF RR EPF RR

58 1,281.78 46.67 1,429.04 38.97 1,867.86 34.02 59 1,341.07 48.83 1,501.11 40.93 1,968.95 35.86 60 1,401.08 51.02 1,574.19 42.93 2,071.57 37.73 61 1,462.00 53.23 1,648.46 44.95 2,175.97 39.63 62 1,525.28 55.54 1,725.57 47.06 2,284.32 41.61 63 1,591.10 57.93 1,805.73 49.24 2,396.90 43.66 64 1,659.66 60.43 1,889.19 51.52 2,514.07 45.79 65 1,731.19 63.04 1,976.22 53.89 2,636.21 48.02

Source: Author’s calculation

The graph below (Figure 7.1) shows the replacement rate level for all different levels of education with full employment (no disruptions during employment).

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Figure 7.1: Graph: Scenario A (Ch 7): Full employment retiring at different ages

Source: Author’s calculation

The results in Table 7.3 and Figure 7.1 above are derived from simulation based on full employment. It was obtained from simulating different retirement ages, ranging from 58 years to 65 years with no disruptions made during employment years. No disruptions, no withdrawals and a constant 20% contribution made throughout employment years could be expected to provide higher savings for retirement. However, retiring at the current statutory retirement age of 58 does not provide a 40% of replacement rate level for all levels of education. For example, only SPM holders that retire at 58 could receive 40% of their last drawn salary during retirement. Besides that, 40 years of employment for SPM holders could provide them with an estimated monthly income of RM 1,281.78, which is equivalent to 46.7% of their last drawn salary (refer to Table 7.3). However, even though the replacement rate level for SPM holders is high, their estimated monthly income during retirement is the lowest, which may be due to a low monthly salary during employment.

On the other hand, Diploma and Degree graduates retiring at 58 have replacement rate levels of less than 40%, which is 38.97% and 34.02%, respectively. Diploma holders would

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normally start working at 22, which is 4 years later than those with SPM qualification. In order to receive at least 40% of their last drawn salary during retirement, Diploma holders must retire at 59, which is a further year in employment from the current statutory retirement age. By retiring at 59, their estimated monthly income during retirement is RM 1,501.11, which is approximately 2% more than the monthly income received if they had retired at age 58.

However, Degree holders have a much lower replacement rate level than Diploma holders.

The starting age of employment for Degree holders is 24, which is 2 years later than for those with a Diploma, and this 2-year difference results in a replacement rate level which is 5%

lower than that for Diploma holders, at 34.02%. Based on the simulation, Degree graduates might have to work at least until 62 in order to achieve 40% of their last drawn salary. By retiring at 62, which is a further 4 years in employment beyond the current statutory retirement age, their estimated monthly retirement income could be an additional of RM416 compared to retiring at 58, making a total of RM 2,284.32 per month (refer to Table 7.3).

7.3.2 5 Years Disruption

In contrast to Scenario A(i), Scenario A(ii) shows results for different educational levels simulated with a 5-year gap in employment. The replacement rate levels and estimated monthly retirement incomes are shown in Table 7.4 and Figure 7.2 as below.

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Table 7.4: Results: Scenario A (Ch 7): Retirement age with 5 years disruption

SPM Diploma Degree

Figure 7.2 Graph: Scenario A (Ch 7): Retiring at different ages with 5 years disruption

Source: Author’s calculation

Results in Table 7.4 and Figure 7.2 above are derived from simulation based on a 5-year gap in employment. Since women are reported to have gaps in their employment years due to care-taking responsibilities (refer to Chapter 3, Section 3.2), this scenario provides a picture of the likely situation of employed women who plan to have disruptions in their career.

5 years disruption retiring at different ages

SPM Diploma Degree

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Based on the results shown, by retiring at 58, the replacement rate level for SPM, Diploma and Degree holders would be 36.09%, 29.30% and 25.81% of their last drawn salary, respectively. SPM holders might have to work until 60 in order to achieve at least 40% of their last drawn salary, that is, an estimated RM 1,149.51 per month. Comparing this scenario with A(i) and retiring at the same age 58, having a 5-year gap during employment would result in an estimated monthly income of 10% less than that received with no gaps during employment for SPM holders.

Starting work at 22 with 5 years disruption and retiring at 58 results in a total of 31 years in employment, which would give Diploma holders an estimated of 29.30% replacement rate level, which is about 11% below the standard level set by the ILO (ILO, 1952). In order to achieve at least 40% of their last drawn salary every month during retirement, Diploma holders would need to make up for the years they spent out of employment by working until 64. However, their estimated monthly income would still be slightly lower than that of those with full employment.

On the other hand, a Degree graduate with a 5 years gap in their career would have to work the longest, namely until at least 67, in order to achieve a 40% replacement rate level. If a Degree graduate with a 5 years gap in employment wished to retire at the current statutory retirement age, their replacement rate level would be 18.66% lower than that of someone who retired at 67, and that 18.66% would result in approximately RM898 less a month (refer to Table 7.4). Therefore, in order to earn more during retirement, women must be willing to work longer or less working years will result a lower monthly retirement income.

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The following five conclusions can be drawn based on the results in Scenarios A (i) and (ii).

Firstly, Diploma and Degree graduates may have to work extra years compared to SPM holders to achieve a replacement rate level of 40%. Secondly, Diploma and Degree graduates without disruptions in their career may have to work until 59 and 62, respectively, to at least receive 40% of their last drawn salary during retirement. Thirdly, with a 5 year gap in employment, SPM, Diploma and Degree holders would have to work to until at least 61, 64 and 67, respectively, to receive at least 40% of their last drawn salary during retirement. The fourth conclusion for this scenario is, with a year extra in employment, either with or without disruptions, results in at least 2% difference in the replacement rate level. Lastly, even though the replacement rate level for SPM holders is the highest for every retirement age, their estimated monthly income amount is still the lowest, due to a low salary during employment