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Contributions made by employees are deductible from their personal taxable income.
Income generated from the scheme is tax-free plus there is potential for capital
gain if the investment manager of the pension fund is able to maximize the return
of the investment. Withdrawals from the schemes by employees are not recognized as
income.
In contrast lo popular belief, benefits for pension funds are not limited to employees
only. Employers tend to gain as well. Contributions made by the employer are deductible
from company's taxable profits.
A more significant benefit for employers is tax rebates for contributions to the
EPF or companies which may be paying 12% to the EPF can increase the benefit to 19%,
tallying up the extra 7% deduction via the establishment of a private pension plan
for employer.
To encourage companies to set up savings or private plans for their workers, there
is also special once-off deduction which in certain circumstances can prove extremely
favorable for companies as they are able to save a big chunk in terms of tax savings
when setting up pension fund for the first time.
"Many employers will be pleasantly surprised, depending on their circumstance
at the quantum of tax benefit there for the taking", Mr. Wilkie said. A decision
not to take advantage of the tax incentive is a tax savings forgone.
Another speaker Mr. Richard Thornton of Total Approach also agreed the Malaysian
tax laws make it very attractive to set up pension plans. "It is a tax-free
roll up for the employee, tax deductible for the employer, and after the 1998 changes,
better than ever.
Apart from the tax incentive, pension funds will help retain quality staff for future
growth. In other words, pension schemes help prevent staff poaching which is a common
trend during periods of economic boom.
Your staff will likely stay with you longer if they are convinced that you "take
care" of them. Remember that staff is the greatest asset for any company.
Pension funds also benefit the economy as a whole as the increased participation
of institutional players will tend to cushion the local financial market against
excessive gyrations.
At present, with the local financial industry still at its infant stage, retail investors
with their speculative nature towards investments, account for 70% of the total market
volume with the remaining from institutional players.
The growth of private pension funds in Malaysia is still very small compared to other
established markets such as in the U.S. New Zealand and Australia. Malaysia is on
the right track (refer to Chart 1). Mr. Wilkie said "the global message from
all governments everywhere is clearly one of self-reliance".
Source: Normandy Research
As time passes, your plans and needs will change. Think of your retirement plan as
a road map, one that compresses a long journey into a simple picture. To conclude,
private pension plans will ensure that you will achieve a successful retirement.
You may need professional financial consultants to help you properly guide you towards
your retirement dreams. Give your retirement plan a big lift in 1998!
Try not to guess exit and entry points with your retirement funds. Do not punt with
money you do not own. A regular "top up" contributor to your companies
staff private pension plan is a systematic, opportunistic way of averaging your entry
cost, utilizing professional management who more inclined to risk adverse strategies.
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