Pension Systems and AssetManagement in the Context ofPopulation Aging in the Region
2023“Capital markets and the asset
management industry in Malaysia:
An understanding of structural andindividual barriers to long-term savings”.

Structural challenges impacting long-term savings andcapital markets
Structural Megatrends
Accelerated by COVID-19

Labour Markets

Social Protection Gaps

Advancements in technology

Low wages Fresh graduates'
median salary fell by aquarter from just overRM2,000 in 2019 to a paltry
RM1,550 in 2020.

Low social insurance coverageand protection – 55% of theworking age population adults
are not covered by any form
statutory contribution (either
EPF or SOCSO)

Evolving nature of work
Demographic change +Retirement dilemma
Structural inequalities
Climate change

Source: ICMR, SC Capital Market Masterplan 3

High youth unemployment
and underemployment- 40%of youth are unemployed and
60% of youth are working
outside of their field ofexpertise;
Low women participation
rate There are only 54% ofwomen are in the labour
force with many opting todrop out around the age of30;
Gig, informal andindependent workers

Fragmentation of social
assistance programmes canlead to overlapping
programmes causing bothinclusion and exclusion errors.
E.g. a UNICEF survey found that
35% of families that received
financial aid in 2018 were notqualified (inclusion error) and
34% of households did notreceive family allowances
despite being eligible (exclusionerror) .

Capital Markets as an
Enabling Mechanism

Structural upgradeof the economy;
andAugmentation of
the retirementsavings landscapeIndividual (behavioural) challenges impacting long-termsavings and capital markets
Three cognitive biases* - status quo bias, loss aversion, present bias can impact anindividual’s decision to save for retirement
Present bias reflects the difficulty for anindividual to act now in the interest of thefuture. It can also be exacerbated bypoverty, financial and mental stress.
Financial scarcity and stress can reduce a
person’s capacity to make sound decisions
and solve problems
Retirement inadequacy Study by ICMR showed that thosebelow 40 years old met the thresholdfor retirement savings as determined
by EPF. However, as soon as they reach
41 years old, more than half of the EPFcontributors are not able to meet thetarget basic savings for each age
group.
 EPF savings as a source of emergency
savings during COVID-19
Source: ICMR,*according to Benartzi and Thaler (2007)

Low financial resilience
1. BNM survey highlighted that while 84% of
Malaysians do save on a regular basis,these savings are typically withdrawn by
the end of the month
2. In ICMR study on Millennials and Gen Z in
2021, it was found that “saving forretirement” is not a top priority inyounger generation’s financial goal
3. Data on financial literacy shows Malaysia
ranks lower than average compared toOECD Financial Literacy Score, particularly
on “attitude” which measures long-term
financial planning
Problems with mental accounting
Challenges in saving for retirement
especially for low-income group as theirneeds for short-term liquid and emergency
savings outweigh long-term savings for
retirement

Impact the individual's capability
to save for retirement
Retirement readiness needs anuanced and tiered approachleveraging on BE

e.g opt out, defaults, reduce choices forpension funds to reduce decision fatigue,
framing

Understanding the structural andbehavioural barriers of different
segments of the population e.g.
demographic, gender, income andfinancial literacy levels and risk
tolerance
Trust and relatability matters
especially for the younger generation
Trust of financial advisors
and intermediaries are a big concern

Key characteristics of identified investment groups

Risk Tolerance(self-assessed)

Financial
Literacy (selfassessed)

Allowance(19%)

Risk averse(40:34:26)

Only know alittle (65%)

Salary(82%)

Freelanceincome(26%)

Low-moderaterisk taker(26:35:39)

Only know alittle (65%)

Salary(87%)

Bonus(44%)

Risk taker(14:30:57)

I am quite
knowledgeable(48%)

Gender(majority)

Largest householdincome groups

A - Not invested in capital
markets(22%)

Female(58%)

Less than RM4,999(69%)

Salary(65%)

B - Only invests in 1 low-risk unit
trust product(33%)

Female(61%)

RM3,000 – RM9,999(71%)

C - Diversified capital market
investments(45%)

Male(60%)

RM5,000 – RM15,000++
(71%)

Group

Income source(majority)

Note: Findings on characteristics and groups found in Millennials and Gen Z study in 2021 (n:1,500) are similar with the findings fromVulnerability study in 2022 (n:2,019)
Source: ICMR study “The Rise of Millennial and Gen Z Investors: Trends, Opportunities and Challenges for Malaysia”

Conceptual map introducing results from internal research
Low wages

Social media
Promote savingfrom young
Online platforms

Youth un- &underemployment
Gig and informalworkers
Low social insurance& protection
Fragmentedassistance

Affected by

Behaviouralchallenges

Information
campaign

Long termsavings

Affected byLoss aversion

Vulnerability

Present bias

Needsprotection by

Auto enrolment &defaults
Simple, low cost,
low risk. liquid
ESG/impact/Islamic
investingIndustryrelated drivers

Addressed byMicro investing

Suitable products

Regulators andpolicymakers

Behaviouraland accessdrivers
Situational
drivers

Status quo bias

Peer influence
New products (ECF,P2P, DAX)

Structuralchallenges

Affected bybusiness practices

Financial stress

Health issues

IncomeEducation

Savings attitudes

Financial Literacy

Financial status

Retirement
readiness

Temporarydifficulties

Income shock

Bereavement

Relationshipbreakdown

Job loss

Digitalisation

Product-clientmismatch

Complex/misleading
documentation

Unreachable
financial service
providersCapital market
intermediaries

Financial advisory
Retirement-related
products

Source: ICMR study “The Rise of Millennial and Gen Z
Investors: Trends, Opportunities and Challenges for Malaysia”

Roles of various bodies to address structural
challenges affecting long-term savings
Role of Government andPolicymakers

Role of Capital Market and
Financial Intermediaries

Strengthening social assistanceGreater differentiation in pension products

Reforming social insurance, pension
and retirement

Promote and link corporate PRS with ESG
good practice

Making labour market active andinclusive

Offer products with higher return while
protecting the investments against
business cycle risks

Governance & data consolidation

Offer solutions for retirees to increaseknowledge and risk management

Financial education programmes

Greater segmentation and tiering ofregulation to widen products anddistribution channels
Ensuring savings mobilisation andretirement needs are met

Source: ICMR study “The Rise of Millennial and Gen Z Investors: Trends, Opportunities and Challenges for Malaysia”

Thank You7