Page 41 - CMP3

Diagram 1
HOW FINANCIAL DEVELOPMENT CONTRIBUTES TOWARDS ECONOMIC DEVELOPMENT
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Development of the financial sector plays a foundational role in allocating resources for the broader economy
2
The financing available in an economy, whether coming from banks or the capital market, matters for growth past the middle-income frontier
2 1
Middle-income frontier
Source: SC.
3
High-income frontier
3
Capital markets stimulate resource allocation towards activities that are
Global frontier
driven by innovation and/or geared for export-orientation – activities that are riskier but entail higher rewards
significant number of households have had to withdraw their retirement savings early to tide them through the economic crisis. If left unresolved, the growing gap between retirement savings and actual needs could lead to a drag on the economy in the coming decades, as the government is forced to step in to close the funding gap.
In addition, the Malaysian pension system, like most global pension systems, will see significant pressures to generate high returns from existing savings to meet future retirement needs. This is given the expectations of lower asset returns moving forward, evidenced by the decline of investment returns and discount rate assumptions by global pension schemes over the past decade14. The search for returns may drive retirement schemes towards investing in riskier alternative assets on behalf of their members or lead to members demanding to withdraw and invest their retirement savings in other instruments that offer better returns.
Moving forward, the current shortfall in retirement savings requires serious and urgent attention before it precipitates into a bigger problem in the future. At the same time, to encourage Malaysians to invest for their future to supplement their mandatory retirement savings, it is also imperative that the broader population of Malaysians are empowered to tap into alternative investment products according to their risk preferences. This will require a holistic approach to enhance investor literacy and awareness, investment access and options, investor confidence as well as investor protection in the capital market.
14 Investment Return Assumptions, US National Association of State Retirement Administrators, July 2021; Pension Accounting Trend, PricewaterhouseCoopers UK, March 2021.
CAPITAL MARKET MASTERPLAN 3
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