Much ado about TAP
Someone asked me about a previous posting of mine which among others I said 'forget TAP' when it comes to preparing for your retirement. My former officers are asking why the sudden change of attitude since I used to be the head honcho of the agency? I thought I will take the opportunity to clarify my earlier blog. It was never my intention to advocate a total abandonment of TAP nor to insinuate my former hardworking officers that their efforts are not worthwhile. On the contrary, I salute my ex-officers and ex-staff in their endeavour to provide a more professional public service agency. I think theirs is probably one of the best among government agencies. However there is a limitation to the TAP scheme itself.For a lot of young people joining the workforce be it in the private sector or the government sector, the first thing you will come face to face with any government agency will be with TAP or to give it the proper name - Tabung Amanah Pekerja (TAP) or in English, the Employees Trust Fund (ETF, but this is rarely used). The fund is modelled after the Singapore CPF and the Malaysian EPF and as most provident funds is a 'defined contributions' scheme. You get to save a certain percentage of your pay with additional contributions from your employers which currently stands at 5% + 5% = 10%. In Singapore it's about 30+% and Malaysia it's about 20+%. The rates can vary depending on the economic conditions.
First entrants into the workforce have to be registered as a member and contributions will start from the first paycheck. This forced savings will be kept under that employee's account and will be invested by TAP. Last year, TAP managed to get a very good return of 4.25% (which is higher than any banks' returns in Brunei) and this year I have been informed, will be along that line as well. Apart from the early formative years, TAP has managed to keep its return well above inflation rates, so savings do grow. TAP employs a specialist investment panel as well as international fund managers to look after the investments, so there's nothing for the TAP members to worry about, plus the fact that the TAP Act also guarantees 100% of the savings. So even if the management were to go crazy and lose all the money in investments (we sincerely hope it doesn't), your savings will still be protected by the government.
So, why 'forget about TAP'? TAP savings will provide you with a lump sum payment at the end of your working career at age 55. But 10% savings per month is far from enough to maintain your current lifestyle during your retirement. Think of TAP as the basic and since it's compulsory, you can't get away from it. So your 10% savings will be there when you retire. Now, what you need to look at is how to get even much more when you retire. According to some actuarial studies, you need to save as much as 75% of your pay to maintain the same lifestyle you have when you retire. Think about it. This is an almost impossible demand. This is where the advices that I have put in my previous blog was supposed to help raise this extra amount.
I guess some readers would ask - if TAP knows 10% is not enough, why not raise the contribution rates? The problem is that TAP's legal contribution rates are across the board - it applies to everyone in the country whether you earn a lot of money or just enough to survive on. 5% of $10,000 is peanut as opposed to 5% of $500. So, any contribution rates rise would have to take into account everyone's ability to pay - that means both employees and employers. From the studies so far, there are a number of both employers and employees who can't afford to pay the higher rates. At the same time, don't forget too that any significant raise would also lessen the amount of cash available in the total country's economy. Hence, the problem is a more global nature. One solution we are contemplating on is for TAP can raise it slowly as what's done in Singapore and Malaysia (both almost 60 years old when compared to TAP's 12 years). But for the purpose of my blog's arguments - this will take time and that's why I say 'forget TAP'. By the way, TAP does allow for any member to save more, so if you don't feel like doing your own investments, you can put the extra deductions from your salary into your TAP account and let it grow there.
The moral is - at the end of the day, you have to do more than just wait for TAP to deliver that savings at the end of your working life. You have to get up and do more for yourself and your family.
Comments
My two cent suggestion is for an introduction of a ceiling pension (if there is such a word)where a person should receive an amount shall not be less than an agreeable sum and shall not exceed an agreeable sum.
And...I think it's now time for TAP to invest those money!
1.) Is the money invested by TAP put into investments that are Islamic ie in the sense it's invested in companies that do not include casinos, tobacco, alcohol, riba-related investments?
2.) Why does my company only pay me back my 5% TAP savings and they deduct the 5% from their contributions from my end os service gratuity? Is that legal?
Interesting post BR, that has raised my eyebrows as high as THE ROCK's.
You mentioned about the 4.25% for last year's dividend. Is it 4.25% per annum or for the 15 months from Jan 04 to April 05?
If 4.25% p.a then that means for 15 months, by my calculation should be 5.31%. Which means TAP members should be entitled more.
If 4.25% for 15 months is equivalent to 3.40% p.a which is not far off from TAP's previous years' dividend. Was it about 3% to 3.25% previous years?
Could you clarify the above as it is confusing and misleading if you say its higher than normal bank rates.
Apologies if I make wrong calculations as it is only an approximate.
Mr BR was right about the returns, even though 2004 was a 15 month year due to transition, the dividend calculation for 4.25% is for 12 months (Jan to Dec) plus another additional 4.25% prorated for additional 3 months (Jan to Mar). So 4.25% is not prorated over 15 months. The highest from banks over 2004 was TAIB for which is 4% pa.
A recent paper finds that pension savings increase national savings when pension savings is mandatory.
Surely this means that an increase in the TAP contribution rate would increase national savings and hence investment. This would mean more money available to an economy in the long run.
Also, when income increases, demand for imports (e.g. that shopping trip to KL or Singapore or London) increases, thus this would reduce the amount of cash in the economy. This acts as a leakage in the circulation of income in the economy. An increase in the TAP contribution rate would 'force' people to save more and thus spend less outside the economy keeping the circulation of income within the economy.
Rather than raising the overall contribution rates, why not have different contribution rates depending on income levels?
Anway, thank you for raising the level of discussion and thank you for your suggestions, i will let the relevant people currently working on this matter know.
I've just quit my job a few months ago to pursue a business career working for myself.
I've only worked for about three years and have about 13k n my TAP.
Is there any way that I can withdraw those funds?
I need the money to pay for the bills and feed my family.