AS we begin a new century, global trends and issues of social                                                                                         
security will continue to challenge governments everywhere as                                                                                         
they work to provide viable schemes to benefit growing and                                                                                            
ageing populations.                                                                                                                                   
                                                                                                                                                      
Some of these schemes may be extensions of established old-age                                                                                        
pension systems; others may be new or additional ones which                                                                                           
aim to cater to changing needs. In some countries, private                                                                                            
voluntary pension schemes have emerged to complement or to                                                                                            
replace mandatory public pension schemes.                                                                                                             
                                                                                                                                                      
Whoever the pension provider, and whatever the approach, the                                                                                          
raison d'etre of most pension systems is to ensure protection                                                                                         
against the problems associated with ageing which include loss                                                                                        
of occupation and income, and the need for healthcare.                                                                                                
                                                                                                                                                      
Put simply, the challenge for governments is to avert the                                                                                             
old-age crisis which, if not managed, will put an enormous                                                                                            
strain on limited resources.                                                                                                                          
                                                                                                                                                      
In Malaysia, as with many other countries, a public                                                                                                   
pay-as-you-earn social security system is in place through the                                                                                        
Employees Provident Fund which was set up nearly 50 years ago.                                                                                        
As the first mandatory national provident fund in the world,                                                                                          
the EPF is an institution synonymous with old age security.                                                                                           
                                                                                                                                                      
Set up initially with the intention to provide an opportunity                                                                                         
to save for retirement and allow withdrawal of the capital sum                                                                                        
at retirement age, the EPF has over the years undertaken                                                                                              
reforms in line with changing needs and expectations and has                                                                                          
begun to provide for partial withdrawals in a number of                                                                                               
situations, including for medical treatment, housing purchases                                                                                        
and education.                                                                                                                                        
                                                                                                                                                      
One of the challenges of the EPF today is to manage the                                                                                               
growing popularity of other instruments of long-term savings,                                                                                         
including unit trusts and insurance schemes, and to strengthen                                                                                        
public confidence in it as a guaranteed provider of individual                                                                                        
security in the event of loss of income, old age or ill                                                                                               
health.                                                                                                                                               
                                                                                                                                                      
The debate about the future of social security schemes is                                                                                             
interesting, with countries opting for a variety of                                                                                                   
instruments: from voluntary to employer-led systems,                                                                                                  
industry-led schemes, open funds to which anyone may                                                                                                  
contribute, life annuity, individual accounts, etc. Some                                                                                              
governments may not wish to manage social security systems and                                                                                        
prefer to pass It to the private sector.                                                                                                              
                                                                                                                                                      
It is recognised universally, however, that old- age                                                                                                  
protection is a fundamental right and that it is important to                                                                                         
have in place from the start a clear regulatory framework and                                                                                         
a strong supervisory authority.                                                                                                                       
                                                                                                                                                      
Social security and pension reformists recognise the                                                                                                  
desirability in most cases of retaining the public social                                                                                             
security system as a safety net.                                                                                                                      
                                                                                                                                                      
Studies have found that private account managers have not                                                                                             
necessarily been competitive in terms of optimising client                                                                                            
returns, nor have rates of return been as high as envisaged                                                                                           
they would be.                                                                                                                                        
                                                                                                                                                      
Another drawback is that privatisation of social security                                                                                             
allows employees the freedom to choose private account                                                                                                
managers and, sometimes these choices may be less than                                                                                                
prudent.                                                                                                                                              
                                                                                                                                                      
WITH a base of 9.2 million members, the EPF remains one of the                                                                                        
largest institutions of its kind in the world. Each month,                                                                                            
contributions amount to an estimated RML2 billion.                                                                                                    
                                                                                                                                                      
The EPF puts these contributions into several income-bearing                                                                                          
instruments in order to sustain a reasonably comfortable level                                                                                        
of dividend for its members.                                                                                                                          
                                                                                                                                                      
The EPF is guided by an investment policy that values                                                                                                 
high-security and low-risk investment products. Transparency                                                                                          
and accountability ensure that the fund keeps close to its                                                                                            
investment principles. Integrity of investment decisions is                                                                                           
crucial when managing public funds.                                                                                                                   
                                                                                                                                                      
The EPF is committed to paying contributions, plus dividends,                                                                                         
in full as per its mandate. In 1999, it paid out RM1.97                                                                                               
billion to 72,719 retirees above the age of 55. This does not                                                                                         
include withdrawals for housing and medical needs.                                                                                                    
                                                                                                                                                      
Recent World Bank statistics have shown that in Malaysia the                                                                                          
number of people over 60, which touched one million or 5.9 per                                                                                        
cent of the population in 1991, would have increased to 1.4                                                                                           
million nine years later. By 2020, the grey population will                                                                                           
number 3.2 million - almost one in 10 Malaysians.                                                                                                     
                                                                                                                                                      
The benefit of contributing to a mandatory savings scheme is                                                                                          
that the intricacies of investment are taken care of.                                                                                                 
                                                                                                                                                      
A recent meeting of directors of social security organisations                                                                                        
in Asia and the Pacific under the auspices of the                                                                                                     
International Social Security Association (ISSA) debated the                                                                                          
pros and cons of privately-managed old-age pension schemes                                                                                            
versus publicly-managed ones and generally found there is a                                                                                           
wide divergence of opinion on the issue and that                                                                                                      
privately-managed schemes may not be satisfactory replacements                                                                                        
for the traditional defined-benefit publicly-managed system.                                                                                          
                                                                                                                                                      
Indeed, it was noted that the principal objective of pension                                                                                          
is adequate retirement income and any reform that jeopardises                                                                                         
this cannot be considered worthwhile.