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The Star
2 days ago
- Business
- The Star
Lump sum vs monthly pension payments: Which is better?
RETIREMENT security is the top financial worry for workers in many countries as a lack of retirement savings has been a global phenomenon. Malaysians are facing insufficient retirement savings due to a range of structural factors that have exerted intensifying pressures on the retirement system. These include the rising cost of living, lower income, high personal debt, insufficient retirement savings, rising medical costs, rising life expectancy, an ageing population and rising old-age dependency ratio as well as the informal sector. The call to action is now. There are too many signs suggesting the population is unprepared. As at Dec 31, 2023, a total of 578,868 active members (6.8% of total active members) approaching retirement (age cohort 51 to 55) had average savings of RM257,921 per person. For the age cohort of 46 to 50, a total of 712,849 active members had average savings of RM230,972 per person. As Malaysia is already an ageing nation since 2021 (the share of those aged 65 and above reached 7% of the population) and is projected to become an 'aged nation' by 2043, and with life expectancy expected to rise to 80 by 2040, it has become more critical to build adequate retirement savings. Bank Negara Malaysia's report in 2023 had warned that an average Malaysian would be at risk of having depleted his or her retirement savings 19 years before death, highlighting an urgent need for undertaking structural reforms to rebuild the savings buffer. We encounter difficulties in the fine balancing between financial sustainability and adequacy of state pensions. Savings factor Throughout working life until retirement, the key consideration for retirees when shifting from the accumulation to decumulation phase of retirement is having suitable retirement savings and an investment strategy. The accumulation phase usually refers to a period of about 20 to 30 years before retiring. Regular savings will accumulate or build up reserves or assets by investing efficiently over the long term. In contrast, decumulation is the process of converting savings for retirement into a consistent and sufficient stream of income that lasts through retirement, maintaining a good quality of life during retirement. Set to launch in January 2026, the Employees Provident Fund's (EPF) Retirement Income Adequacy (RIA) Framework is aimed at allowing members to set savings targets that reflect different retirement lifestyles and aspirations. The RIA Framework focuses on the concept of both savings and retirement income security, helping members to understand the importance of EPF savings as a source of ongoing income, and the need to sustain savings during retirement. The RIA Framework introduces a three-tier savings framework to encourage a monthly drawdown for 20 years, aligned with Malaysians' average life expectancy. > Adequate Savings (RM650,000) for a reasonable standard of living: Enables monthly withdrawals starting at RM2,708 in year one, growing to RM7,389 by year 20. > Basic savings (RM390,000) for covering essential retirement needs: Supports monthly withdrawals of RM1,625 in year one, growing to RM4,434 by year 20. > Enhanced Savings (RM1.3mil) for providing a more comfortable retirement: Provides monthly withdrawals of RM5,417 in year one, increasing to RM14,779 by year 20. The new Basic Savings benchmark of RM390,000 represents an increase from the previous RM240,000. To phase in the transition, the Basic Savings amount will increase gradually by RM50,000 annually over three years: RM290,000 by Jan 1, 2026; RM340,000 by Jan 1, 2027; and RM390,000 by Jan 1, 2028. Retiring well Retirees have to retire well by decumulating wisely, and hence building better retirement futures. But individuals (affluent or less affluent) have a wide variety of objectives depending on their circumstances and aspirations. Amongst the retirement households' most important financial goals are assuring a comfortable standard of living in retirement, protecting the current level of wealth, improving the household cash flow and aggressively growing their wealth. Some have pre-planned to use their retirement savings to start a business to generate more retirement income; some have partially pared down their outstanding debt; some have given to their children as a down payment for buying a property or a car; finance their children education; and invest in some financial instruments to grow their assets. While retirement planning requires better financing knowledge, decades of saving, budgeting and working hard to grow one's income to set it aside for retirement, it is equally important to place emphasis on optimising the decumulation phase, developing a long-term sustainable plan to gradually spend their accumulated savings and assets throughout their retirement years. As retirees move from accumulation to decumulation, their feelings and views on preserving their retirement income and managing financial assets' risk will change. The biggest pitfall in retirement planning is underestimating the total cost of living comfortably, particularly overlooking expenses like healthcare, travel, and leisure activities. This can lead to financial strain during retirement. In the face of complexity and uncertainties in today's environment, many retirement households have taken a conservative approach of 'let me hold on to what I have, let me spend at a much lower rate'. The 'decumulation paradox' occurred for many retirees, even the affluent retirees that tend to under spend after they have retired – most retirees don't spend as much as they safely could or spend as much as many retirement strategies assume. To devise a sustainable decumulation strategy, one must carefully plan how to convert accumulated retirement savings into a reliable income stream while managing various risks. This involves understanding individual needs and goals, assessing available resources, and choosing appropriate withdrawal strategies that can adapt to changing circumstances. Proposed scheme Under the 13th Malaysia Plan (2026-2030), the government has proposed to introduce a monthly pension payout scheme, instead of a lump sum withdrawal for EPF members once the reach the minimum retirement age. Their savings will be split into two main components, flexible savings, which can be withdrawn at any time based on members' needs and income savings, which will be disbursed regularly or monthly until fully utilised. The EPF has commented that the proposal is currently being studied, and any decision will be made only after thorough engagement with key stakeholders and careful consideration of members' long-term interests. The Finance Ministry has clarified that the proposed monthly pension - style payments would apply only to new members registering after new mechanisms comes into effect. Existing members may choose to opt in voluntarily. Facing a pivotal pension withdrawal decision is our choice solely, which is between a lump sum payment or a monthly lifelong income stream and this deserves careful consideration. Lump sums offer flexibility for big purchases or investments. However, it requires financial discipline and can be risky because retirees might be spending it too fast. It was revealed that a shocking 70% of members who made full withdrawals upon reaching retirement age somehow exhausted all their savings within 10 years. The EPF data showed that one in four members exhaust their EPF savings within five years after reaching withdrawal age, More worrisome is that many retirees have made wrong choices in investing into high risky investments in chasing lucrative and fast returns, and have fallen victims to investment scams due to a lack of awareness and financial investment knowledge. Monthly payments deliver guaranteed lifetime income, smoothening consumption and spending. This helps with everyday costs and feels safer. As for contingency or emergencies expenses, members can withdraw from the Account Flexible, which can be withdrawn at any time based on members' needs. The choice of between monthly withdrawal or a lump sum depends on your financial needs, financial discipline, financial literacy, investment experience, and longevity expectations. Some of the ways that retirement households offset higher than expected expenses are reduced discretionary spending on non-essential items, adjusting the spending budget, withdrawing money from savings, putting off home improvements, downsizing their homes and moving to a more affordable housing area, and also working part-time. Under the current scheme, EPF members can withdraw all their money when they reach the voluntary retirement age of 55, or make periodic withdrawals. Neither is mandatory. This has been working well for most EPF members, though some have exhausted their savings after a few years. While the proposed new scheme that comprises flexible savings and income savings would help to preserve the members' retirement savings and a good intention, the members should be given the option to participate voluntarily, and it should not be made mandatory, regardless of new or existing members. Given its feature of flexibility, members may opt to participate in this proposed new scheme as it provides 'flexible savings' account for members to withdraw at any time based on their needs. It is important to design appropriate decumulation strategies that would consider retirees' preferences, risk factors as well as a well-defined asset mix and withdrawal plan. The common goals of retirees are to receive a steady income; spend as much as possible during retirement and that their retirement income be protected against the risk of outliving their retirement savings. Countries like Australia, Singapore and Canada and Ireland have a well-designed decumulation strategies that help retirees to ensure sustainable and adequate retirement income. The foreign touch In Australia, the superannuation fund guarantees a steady accumulation of retirement savings. Retirees can choose between account-based pensions, which provide flexible income streams, and annuities, which offer more predictable payments. Canada's approach entailed registered retirement income funds, which offers flexibility in withdrawal and life annuities that provides guaranteed income for life. In Ireland, the use of approved retirement funds allows retirees to keep their pension savings invested and withdraw funds as needed. Singapore's Central Provident Fund (CPF) Lifelong Income for The Elderly Scheme is a national annuity scheme that provides monthly retirement payouts for as long as you live. When members reached 55, they would keep a minimum sum in their CPF, to be spread out in monthly payouts over a period of years. In summary, designing and implementing a successful retirement income, starting from the accumulation and decumulation phases require a thoughtful approach of helping members growing their savings, financial products selection, enhance retirees' financial awareness and education. Financial products like annuities, lifetime income streams and reverse mortgages can provide more stable and long-term income for retirees. Lee Heng Guie is the executive director of the Socio-Economic Research Centre. The views expressed here are the writer's own
Hans India
24-07-2025
- Business
- Hans India
Big-ticket deals help Infy raise guidance for FY26
Infosys posted a sound set of first quarter numbers as it recorded strong sequential growth in revenues with robust deal Bengaluru-headquartered company increased the lower end of its revenue growth guidance for FY26 to 1-3 per cent from 0-3 per cent earlier. In the April-June quarter, Infosys reported an 8.7 per cent increase in its consolidated net profit to Rs6,921 crore. Its revenue stood at Rs42,279 crore, a rise of 7.5 per cent over the same period of last year. In dollar term, revenue was at $4.94 billion, an increase of 2.6 per cent sequentially in constant currency term. 'Our growth in Q1 was broad-based. Our large deal wins stood at $3.8 billion. A large driving factor is our success in enterprise AI (implementation). The economy worldwide has come to a stable situation, but it is not fully settled. As we get closer, we narrowed our guidance keeping in mind the changes seen in the US and Europe,' Salil Parekh, CEO of Infosys, said in the post results press conference. 'We have benefited from deployment of AI agents and from consolidation (deals) that clients have looked at us and being positive,' he added. For the quarter, operating margin of Infosys was at 20.8 per cent, a dip of 20 basis points from previous quarter. The company maintained its operating margin guidance of 20-22 per cent for the whole financial year. 'We continue to leverage Project Maximus to make investments in strategic priorities to drive profitable growth,' JayeshSanghrajka, Chief Financial Officer of Infosys, said. During the June quarter, financial services vertical grew 5.6 per cent YoY basis, while manufacturing vertical rose 12.2 per cent. Energy vertical saw a growth of 6.4 per cent, while retail grew marginally at 0.4 per cent.
Business Recorder
31-05-2025
- Business
- Business Recorder
Ogra slashes LPG prices for June
ISLAMABAD: In line with a decline in oil prices globally, the Oil and Gas Regulatory Authority (OGRA) has issued a notification for the reduction in LPG prices for June 2025. The OGRA has reduced the price of a domestic LPG cylinder by Rs55 and a commercial cylinder by Rs210. There has been a reduction of Rs3,921 per metric ton in the government's production price. LPG prices down by Rs6.15 per kg Now, LPG will be available at Rs241 per kg instead of Rs245 per kg, a domestic cylinder will be available at Rs2,838 instead of Rs2,893, and a commercial cylinder will be available at Rs,10,920 instead of Rs11,130. The LPG producer price is linked with Saudi Aramco-CP and US$ dollar exchange rate. As compared to previous month, Saudi Aramco-CP has decreased by 2.67 per cent. The average dollar exchange rate has slightly increased by 0.35 per cent resulting to decrease in LPG consumer price by Rs54.60/11.8 kg cylinder (1.88 per cent). The per kg decrease in LPG consumer price is Rs4.62. Copyright Business Recorder, 2025
