I am asking this question on behalf of my sister which is a government school teacher...

the question is which is better, comparison between pension scheme or KWSP scheme. consider which is better in long term, which one will give better return taking inflation into consideration after 30 years later.

my sister want a secure life after her retirement which is like 30 years later. with a sum of money that she can support her retirement.

some details
-service tenure: 30 years more
-the KWSP scheme is based on her basic now which is RM260 per month that cut off from her salary, and the same amount of money will be given by the government (RM260, meaning RM520 everymonth will be put into KWSP)and yearly increment for KWSP is RM20. the lum sum can only be taken out after her retirement.

-while there is no salary cut for the pension scheme, but she will receive graduity after she retired from her service, which is half of her monthly salary upon retirement.
e.g if let say her basic after 30 years is RM4000, then she will receive RM2000 every month after she retired until she die, and every medical fees will be born by the government.

she also not very sure about the shole scheme since she only started into workforce but I hope there will be some experts outhere that can shed some light.

thank you

im not sure which one is the better one for your sister.
There are different ideas surrouding those schemes, there are people who prefer KWSP, some pension. They have their own reasons like big amounts can be withdrawn from KWSP(for various reasons) but pension can't.
Pension will have a secure income until you pass away, but the amount is pretty minimal considering the inflation rate and the pension raise(yes pension get raise too once in a while).

There are pros and cons for each of the options, it will be better to get advices from people who are using both of the schemes just to see how they feel about it and why they choose that particular scheme.

anyway, my dad was a teacher and he chose pension. the main reasons were that time KWSP is still very new and he wanted a secure income for his whole life(albeit little but survivable) so that he can support at least himself and my mother(to not burden his children, that's me and my siblings) until he dies...(look, he is still alive )

This post has been edited by LovesReborn: Jul 9 2010, 10:27 PM

Scenario :
KWSP 30 years on employer contribution portion only (since under pension scheme there is no employee portion, in order to have an apple to apple comparison, employee portion should not be considered in KWSP scheme calculations and for a same period of 30 years as well).

Assumptions :
1. Rate of Return of 5.74% per year is used (5.74% is worked out from the average of KWSP return from 1995 to 2009) (Source here)
2. Yearly increment of RM20 mentioned by you is assumed to be RM10 for employee portion and RM10 for employer portion.

Conclusions:
Based on attached calculations, at the end of 30 years, the employer portion only for KWSP compounded with KWSP returns would be able to give your sister a monthly return of RM2,000 for 165 months (or 13.78 years).

Assuming that your sister is now 25 years old, after 30 years that would make her 55 years old. So the above KWSP scheme (employer portion only) would be able to sustain her with a monthly RM2,000 up to age 68.78 years. Based on this alone, seems to point that pension scheme is more ideal if life expectancy exceeds 68.78 yrs old (which is very likely).

Other factors to consider:-
1. Pension scheme would only come into effect after 30 years of service. If she resigns during 30 years, all is lost. It's like placing all your eggs in one basket. Very unlikely a person would stick to the same job for 30 years.
2. Although medical is covered by govt but usually it does not apply to private hospital and only govt hospital. As it is, govt hospital costs are very low and neglible so I don't see medical coverage by govt after retirement as anything beneficial unless it specifically states it includes private hospital.

Advise:-
Stick to KWSP scheme. Better not to place all eggs in 1 basket. Returns from KWSP including employee portion would be able to carry your sister for double the period mentioned above (165 months x 2 = 27 years). Retirement medical benefit is also not considered due to as I mentioned above on govt hospital.

Calculations:
[attachmentid=1668766]

whoa...good analysis by trex...

i'm in private sector, so in all these years, i was nagged again and again by parents to work for gomen, one of the reasons they said is pension is better than KWSP...

now i hav a stronger argument...thnx!

This post has been edited by abu_adi: Jul 10 2010, 01:28 PM

This is totally shallow+ wrong way of thinking and probably you have not really know what is actually in the real world, not theoretically.

How about if you have heart problem/cancer/some serious illnesses which requires really expensive surgery and monthly commitment for expensive medicine?

The medical fees can be really huge even though in is gomen hospital.

FYI, one of my dad's friend have prostate cancer. Due to the nature of the illness, normal hospital cannot handle it so he has to be sent for treatment in Uni. Malaya Hospital (not sure what is the exact name) as it is house for specialist as it is a teaching hospital (fyi, if you want to have top class treatment aka by highly skilled specialist at lower cost, top teaching hospital do open 'private' section if not mistaken during weekends so that those specialist can get income).

And luckily he is under pension scheme as he need to go through a lot of surgeries plus chemotherapy and need to pay couple hundreds for medicine every month.

And sadly but through, the staff of the hospital even told his family members that the medicine that he get during the operation can hardly be given to those not under pension scheme as they simply will not able to pay for the price. They will only be given less expensive drug but you know la what they will get in return.

My dad always told me how lucky is friend by being under the pension scheme as he will definitely not afford to pay all medical fees which probably not stop as cancer requires constant monitoring to ensure the infected cells not grown back.

This is how lucky those under pension scheme as most of the medical fees will be waived by the gov.

Btw, I have heard there are also some of those under the KWSP scheme suffered badly as when they got the money in lump sum, they thought everything is great. They got in deep trouble if there is still huge portion of house loan that need to be settle and start to commit to unnecessary commitment such buy new car and travel.

You can still use the gratuity money that you will also get when you are under the pension scheme or saving money for investment which can be huge as it depends on how long you serve the government.

p/s How sure that your investment will turn out be ok? how sure you will get into serious health problem? How sure are you your children will take care of you or afford to do it if you need really their help?

To get the picture, ask those who have retired. If you ask those who is still young, most of us have not seen much of the real world and what actually is waiting for us in 30-40 years time...

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Added on July 10, 2010, 2:28 pmBy the way, it is 60% not 50% for the amount of pension that you will get .

This post has been edited by hullabaloo_bard: Jul 10 2010, 02:28 PM

Excuse me, this is a purely financial evaluation for KWSP (not a topic on govt hospitals) and that the above are my assumptions and opinion so I would appreciate you not making sweeping statements such as the above without knowing me... Chances are, you are one who doesn't know the real world, kid

Also did you by any chance know how much was the hospital bill from your dad's friend's govt hospital bill? Did you get a comparison of how much it would actually cost in a private hospital? I know cos someone close to me has been on chemo therapy before. Your opinion is purely based on hearsay (not from your personal experience and fyi.. totally inadmissable in court for a reason as such)

Also let me ask you this, have you ever been to a govt hospital for medical treatment ever? When you get a fever, where do you go? Private clinic? Ohhhhh so how come? When you had an accident, again did you pay a visit to govt hospital? So unless you do go seek treatments are govt hospital, don't judge me on my opinion of govt hospitals.

Do consider other factors such as:-
1. for quite a reasonable amount, one can always purchase insurance especially those life insurance that comes with an immmediate disbursement of an amount upon diagnosis of any one of 36 critical illness to enable one to seek medical treatment wherever needed (be it govt, private or overseas)
2. Waiting list at govt hospital especially for serious treatments can be quite long indeed. My sibling, cousin and friends have served in govt hospitals for their housemanship has shared many experience with govt hospitals. So again, when your life is at stake on a medical treatment, where would you go? Govt or private?? After housemanship, where do you think the docs go and why do you think they go there? (so don't you think the best brains would have gone as well?)
3. Yes, no doubt some govt hospitals like UH, USM can be quite good but then again do you think it's all the same quality from all govt hospitals? Ever check out the wait list at UH and USM for serious treatments? And I think you need referral to be able to seek treatment for serious diseases/illnesses at places like UH and USM and can't just walk in and say "hey I wan chemo".
4. When being treated at a govt hospital, the quality of medicine and equipment cannot be compared to the quality from a private hospital at all. How come? That's because private hospitals are money making, they charge 100% back to its customers so can afford to buy and give the best medicine/equipment available (depends whats the demand, so they supply). Govt hospitals operates on govt's financing, so have stricter budgets so might not always buy the best medicine out there but probably the medicine is good enough (but not best) and at a lower price. Sounds doubtful? Next time go ask a govt hospital how long is the wait to do a CT scan. Reason, CT scan machines are limited and govt hospitals cannot buy more cos expensive. In a private hospital, since the usage of the CT scan machine is chargeable back to a customer, the hospital would have purchased ample to cater to demands. Result : CT scan in private hospital can be done on demand basis.
5. In govt hospital, you cannot ask for the type of treatment you want and it is the doc that gives you the treatment that the doc feel is best for you. In private the choices are all put onto the table for you to choose (but with price list as well of course...)

Oh boy, you really have heard many things hor? FYI, the above all can be minimised by way of proper personal financial planning. One should not just dump money into KWSP without planning how it can sustain us during our retirement age. You need to work out something like what I did, calculate how much is the present value of KWSP contributions now and how much Future Value its gonna be at retirement age and how it can sustain you then.

You really are a small kid, fundamental of finance is that high risk equal high return and it works vice versa. So without risk, there is no return! There is nothing certain (even savings a/c and FD is not 100% safe, check BNM ruling as it states that banks needs to only guarantee up to something like RM70k of your money with them. Anything above this amount, if the bank closes down then it is only max RM70k and the rest bye bye) but one can easily diversify this risk out with a portfolio of investments and not placing all eggs in one basket.

Also on serious health problem, have you ever heard of insurance?

FYI, asking those who have retired cant help us at all.. RM50,000 can carry you a long way now and might be enough for retirees now but in 20 years its value would have dropped considerably (probably like RM10,000 now). So the best is work it out yourself and plan your personal finances or if you can't then look for a certified Personal Financial Planner to help you.

This topic was started to ask on 2 evaluations and you pop up with your reply that simply gives no useful feedback to the poster. Please go back to Kopitiam or raise a topic on govt hospital in Real World Issues and I will come to entertain you there.

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Added on July 10, 2010, 6:51 pmactually working for govt has another benefit... tax free allowances... I believe IRB deem these allowances as reimbursement hence not taxable. Go check it up...


This post has been edited by trex: Jul 10 2010, 06:51 PM

apart from tax free allowance, govt employees can get loan easier and (might)get some rebate depending on the assets that you buy.
not sure about this, but there are people around me telling me that.

and one more thing...they normally wont fire you, even if you dont perform.

This post has been edited by LovesReborn: Jul 10 2010, 09:49 PM

yo guys, chill....
I appreciate the feed backs but theres no need for personal attack...we all learn from each other...

Trex has raised a very good and detailed analysis and good points... but also depends on the industry... I think especially for the education industry, government teachers has better benefits and allowances but don't really get to choose where you going to teach.

I know because I have friends who are teaching in both private and government schools.

Working with government - like others have said - have lower interest rate for housing, car loans, longer working years (recent proposal to have until up to 60 years now), job security, pension and medical for family members ...

but then the working environment and culture is another story ...

I see one flaw in trex's calculation. The calculation is based on the assumption that ah_suknat's sister stays in that grade until retirement, which is unlikely. Ah_suknat's sister have opportunities to progress in her career, getting promoted with a better pay. If & when that happens, the pension amount (shud she choose pension scheme) will definitely be higher. Not to mention the GCR (gantian cuti rehat, the govt will pay U for the paid leave U haven't finished at the time of retirement, max 150 days) she can get.... all is definitely more than RM2000 per month. & when that happens, she will regret having chosen EPF, in which she can only get RM2000/month, as in trex's calculations.

To me, that calculation is done by somebody outside of the govt's system, & proly dunno much about it. AFAIK, it's like... 90% of the govt servants choose pension scheme. Those who chose KWSP usually have plans for early retirement (at age 45) & go into business & what not.

Ur calculation's not wrong, but that's only one side of the story. No offence. Even if U feel offended, I couldn't care less. Up to U.

Oohh.. btw, I AM a govt servant.

This post has been edited by tenno: Jul 11 2010, 12:11 AM

couldnt agree more.

if at the end of the service.her basic pay is around rm8k...she will get more than 2k every month..

not to mention gratuity which u can get almost 100k above depend on ur service term, gantian cuti rehat..

although i know you don't care less, no offense is taken... I do welcome feedback and lively discussion, I only don't welcome posters who immediately make judgements...

Actually, my calculation is not flawed, it is called assumptions. Data provided by poster mentioned only RM20 KWSP increment annually. I am not like you from govt service so I don't know on GCR etc etc but I wanted to be helpful to the poster so I only worked based on data provided by poster.

Coming from my perspective from commercial sector, I would see pension scheme as too risky and placing all eggs into 1 basket because you must serve the full service until retirement age in order to get pension scheme right? Isn't this too large a gamble? What if govt cuts spending and downsizes? What if your are forced to "eat dead cat" at work and get fired? What if your boss sucks and you are not happy with work?

Actually you misunderstand the data I presented. Poster mentioned as an example under pension scheme that upon retirement age, the retiree would receive RM2,000 so in order to have an apple to apple assessment of how long actually the KWSP would last if it provided the same RM2,000 per month allowance.

Also I just realised that I had also overlooked one factor. I had worked out total Future Value (FV) upon retirement age but it is based on assumption that it is a one lump sum pay off but actually it is an annuity (allowance every month). So the above data overlooks on the annuity part so under KWSP RM2,000 allowance, the period would have been longer than mentioned in my 1st post. What is annuity? Think of it this way, upon retirement age, you get the full KWSP payment in one lump sum which you then place into say FD and only take RM2,000 monthly.

And one last thing, I had worked out the calculations to be helpful to the poster and it was done under 15mins so I do admit that it is an assessment with many assumptions (and based on my opinion). Appreciate if you post replies to help advise the poster instead of analyzing my calculations under a microscope. IMHO, in making decisions or giving advice to others, reinforce it with data and you should not just make decision or advise people just because "others are doing it" or "this person says so" etc. So don't just say "go for KWSP scheme" or "Go for pension scheme" but reinforce it with data to support your advise as well.

If U have only 15 mins to do whatever calculation without having any proper knowledge or any proper reference, then don't do it. U risk misleading ppl into something else that might cause them their future & I dun think that's being helpful at all. Worse, since this forum is pretty much a popular forum, U risk misleading the whole population of this forum. Ppl in this forum tend to take whatever posted in the topics as pretty much the real thing.

& I didn't suggest to the TS to take or not to take any scheme becoz I'm not in the position to do so. I did mentioned the things U left out in Ur calculations, the important things that shud be taken into consideration before deciding. When we take that into consideration (key factors that was excluded in Ur calculation), it is called misleading, not assumptions. Check Ur facts first next time.

oh well, at this point we'd agree to disagree then

hahaha. so right about not firing u when not performing and under-performing.

civil servants don't pay salary taxes too btw.
housing loan is 1% interest.

is it really 60% of last drawn salary now? yay

so, if u work in govt for 30yrs only can get pencen?

Housing loan is 4% interest flat rate, on balance. Pls check Ur facts. If it was 1% all the houses in the country would've been sold out by now..

Salary tax ? What's that ? I paid my income tax last year. If Ur salary doesn't meet the minimum taxable income, U dun need to pay income tax, no matter what sector Ur from.

pension scheme better. my dad gonna retire this year. gratuity & golden handshake $$ can get >100k. Plus each month got 60% money coming in.

One more benefits for taking pension. Your children won't have to worry to support you when you retired

why not take both? get the pension plan and do financial planning since few of my friends do this as well. They don't depend on pension 100%. They invest in other funds, buy medical card in case of emergency. Best of both world

Under KWSP scheme you can withdraw $ from a/c 1 to invest in Unit Trust. You also can withdraw $ from a/c 2 to fund housing loan, studies and medical expenses.

Having said that ones should also have financial planning such are regular savings, investment, life and medical insurance coverage to secure his/her future life.

My advise is don't go for pension scheme unless you are 1000% certain will work for the gov for the rest of your career life.

May I know for civil servants confirrmed before 2024 and has chosen pension scheme, at what age are they allowed to go for early retirement and is the pension monthly amount equivalent to half of last drawn salary (same as retirement at 60 or is it lesser?) Noteworthy is he pension only kick in at age 55 if one retires much earlier have to wait for age 55 to receive pension right?