TAP nest egg won’t last a year: study

May 29, 2008

Increased living costs by 2023 make it wise to augment your retirement fund

If you retire by 2023 and spend at the rate you do today solely on the money you get from your Tabung Amanah Pekerja (TAP) contributions, you might not be able to pay your bills after less than a year.

This is among findings of the "Social Safety Net" research study by the Centre for Strategic and Policy Studies (CSPS) on the retirement nest egg that people look forward to from their contributions to the TAP or Employees Trust Fund scheme.

"The findings from that study is that the particular income which retirees will receive by 2023 would only last them 10 months, if they continue to spend at the rate they are spending now," Dr Azaharaini Mohd Jamil, executive director of Brunei's think-tank, said in an interview with The Brunei Times.

"By then not only would the quality of life be higher but also the number of people would have then increased. Definitely the government would not be able to support (that)," he said, stressing the need to encourage a saving culture.

The study, he said, has triggered various proposals.

"Among them is to raise the retirement age, one way to give more time for saving. Another is to increase contribution by the employer," he said.

Under the current system, he said, both employer and employee each contribute to the fund the equivalent of five per cent of the employee's income.

"The suggested (changes to) contribution vary depending on the income of the people. The idea is to reduce the income gap," he said.

Before the TAP scheme was introduced in 1993, there was the Government Pension Scheme, a non-contributory scheme offering old-age pension, disability and survivorship benefits for civil servants. Under the old scheme, employees would receive a monthly sum equal to 75 per cent of their last drawn salary.

"I suppose the reason why the government introduced the TAP system is because it is seen as unsustainable to give that 75 per cent as well as it is a more flexible system," he said. He underlined the importance of addressing the inadequateness of the current contribution to avoid future social problems.

"If you're not going to deal with this, knowing that the type of income is inadequate to support them, a lot of social issues would arise. If the government knew earlier, they would know what their options are," he said.

In late 2006, the Ministry of Finance (MOF) contracted out two research studies to look at ways to improve Brunei's current pension system for employees. The project was commissioned to the World Bank and the American International Group (AIG).

In its study report, AIG says it considers Brunei to be in an ideal time to modify the pension system due to current financial flexibility whilst emphasising urgency to improve replacement income for post-1992 working generation.

The study calls for, among others, bigger contributions, extension of the retirement age, increased dividend returns and limiting withdrawals.

AIG also came up with a proposal called the Retirement Income Plan designed to work together with the Old Age Pension (OAP) and TAP. The plan is to achieve a 50 per cent replacement income ratio for all workers.

On the other hand, in the World Bank study report, it says it found that the retirement accumulation is too low due to the low contribution rate. Other reasons are that the balance at retirement would be exhausted due to housing and pre-retirement withdrawals and the low retirement age.

The World Bank recommended a supplementary contribution pension system called the Life Insurance Scheme. The primary objective is to supplement current benefits under the OAP of $250 a month by a minimum of $150.