7B.2 The World Bank's Five-Pillar Pension Framework in the Malaysian Context

FIMM Combined Examination FCE

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1 Introduction: The FIMM Combined Examination (FCE)

0.1 FCE Exam Facts, Registration Rules and How to Use This Guide

2 Chapter 1: Understanding Collective Investment Schemes in Malaysia

1.1 What a Collective Investment Scheme Is and How Malaysian CIS Are Classified 1.2 Investment-Linked Funds Are Not UTS; Industry Growth and History 1.3 Participants in the CIS Ecosystem: Unit Holders, Managers, Trustees, Distributors and Regulators

3 Chapter 2: Introduction to UTS and PRS

2.1 UTS and PRS as Investments: Mechanics, Unit Calculations and How They Compare 2.2 Types of Funds: By Asset Class, Fund Structure and Investment Objective 2.3 Methods of Investing and Dollar Cost Averaging 2.4 Benefits and Disadvantages of Investing in UTS and PRS 2.5 Understanding Risk and the Risks of Investing in Schemes 2.6 Shariah-Compliant Schemes, Their Risks and the Role of the Shariah Advisory Council

4 Chapter 3: Regulatory Framework

3.1 The Regulatory Framework: The SC, Other Regulators and FIMM's Dual Role 3.2 Legislation, SC Guidelines and FIMM Rules Governing UTS and PRS 3.3 Regulation of Scheme Providers and Oversight Functions 3.4 The Deed, the Prospectus or Disclosure Document, and the Product Highlights Sheet 3.5 Portfolio Constraints: Permitted Investments, Liquidity, Borrowing and Exposure Limits 3.6 Regulations for Other CIS: Real Estate Investment Trusts and Exchange-Traded Funds 3.7 Regulation and Duties of the Scheme Trustee 3.8 Regulation of Marketing and Distribution: Distributor Categories, Collection Points and Agency Structure 3.9 Registration of Consultants: Eligibility, Fit and Proper, Duration, Variation and Revocation

5 Chapter 4 (Part 1): Marketing and Distribution — Disclosure and Transactions

4.1 Servicing Investors and the Contents of the Prospectus and Disclosure Document 4.2 The Product Highlights Sheet, Advertising Standards and Account Maintenance 4.3 The Purchase Process and Suitability Assessment Before Personal Advice 4.4 Cooling-Off Rights, Repurchase of Units, Suspension and Switching 4.5 Financing the Purchase of UTS: Process, Safeguards and the Risk Disclosure Statement 4.6 EPF Transfers and Withdrawals for Investment in Approved Unit Trust Funds

6 Chapter 4 (Part 2): Marketing and Distribution — Distributions, Reporting and Service

4.7 Distributable Income, Distributions and NAV, "Buying" a Distribution and Taxation 4.8 Reporting to Investors: Confirmations, Statements, and Semi-Annual and Annual Reports 4.9 Marketing Principles, Delivering Quality Service and Handling Complaints 4.10 The Effect of Inflation, Taxation and Investment Costs on Returns 4.11 Investment Alternatives to UTS and PRS

7 Chapter 5: Code of Ethics

5.1 Compliance, Ethics and the Structure of the FIMM Code of Ethics 5.2 Core Principle 1: Honesty and Integrity 5.3 Core Principle 2: Professionalism 5.4 Core Principles 3 to 5 and Non-Compliance: Conflicts, Disclosure, Confidentiality and Misconduct

8 Chapter 6: Personal Financial Planning

6.1 Personal Financial Planning: Definition, Features, Five Areas and the Six Steps 6.2 Financial Planner Credentials, Skills, Remuneration, and How a Planner Differs from a Consultant 6.3 The Consultant's Role in Investment Planning and Advising Clients Through the Life Cycle

9 Chapter 7A: Features and Operations of UTS

7A.1 Structure of a UTS, the Trust Deed, the Parties and Modifying the Deed 7A.2 UTS Fees, Charges and Expenses, and the Management Expense Ratio 7A.3 Dealing in Units, Valuation, NAV Calculation and Unit Prices 7A.4 Forward and Historical Pricing, and the UTMC's Holding of Units 7A.5 Unit Splits, Distributions and Their Effect on NAV 7A.6 Measuring UTS Performance: Returns, Performance Tables, Risk Measures and Qualitative Factors 7A.7 Operational Aspects of Shariah-Compliant UTS and PRS and the Shariah Contracts Between the Parties 7A.8 Borrowing to Invest in UTS and the Risks of Loan Financing

10 Chapter 7B (Part 1): The Pension Landscape and the PRS Framework

7B.1 The Malaysian Pension Landscape and the Adequacy of Retirement Savings 7B.2 The World Bank's Five-Pillar Pension Framework in the Malaysian Context 7B.3 Key Players: EPF, KWAP, LTAT, Employer-Sponsored Schemes and Annuities 7B.4 Why Malaysia Needs PRS: Ageing, Longevity Risk and the Benefits of PRS 7B.5 The PRS Framework and the Private Pension Administrator (PPA) 7B.6 PRS Structure, the Trust and Deed, Advantages over Other Products, Eligibility and Contributions

11 Chapter 7B (Part 2): PRS Operations

7B.7 The PRS Default Option and Tax Incentives for Members and Employers 7B.8 The PRS Account Structure (Sub-Accounts A and B) and Vesting 7B.9 PRS Withdrawals: Pre-Retirement, Retirement, Permanent Departure, Incapacity and Death 7B.10 Switching Between Funds and Transferring Between PRS Providers (Portability) 7B.11 Unclaimed Monies, Death of a Member and PRS Nomination 7B.12 PRS Funds: Number, Core and Non-Core Funds, Objectives, Risk Profiles, Asset Classes, Authorisation and Naming 7B.13 PRS Fees, Charges and Expenses 7B.14 PRS Unit Creation, Forward Pricing, Valuation, Distributions, Performance Measurement and Electronic Communication

7B.2 The World Bank's Five-Pillar Pension Framework in the Malaysian Context

Key Takeaways Explain This Topic AI

The World Bank framework has five pillars: a non-contributory pillar zero, a mandatory first pillar, a mandatory second pillar, a voluntary third pillar and a non-financial fourth pillar.

Malaysia's pillar zero is the Social Welfare Department's means-tested old-age financial aid for low-income citizens.

The study guide states that the mandatory pay-as-you-go first pillar is not available in Malaysia.

Malaysia's mandatory second pillar includes the EPF, KWAP and LTAT.

PRS is Malaysia's main voluntary third-pillar scheme, partly because EPF is not mandatory for the self-employed and many retirees exhaust their EPF lump sum within three to five years.

Last updated: October 2026

Why a Multi-Pillar Approach?

The World Bank uses a five-pillar model to evaluate countries' pension and social security reforms. Its view is that a multi-pillar system is more flexible, serves different groups better and gives better protection against economic, political and demographic risks than relying on one source.

The Five Pillars and Malaysia

Pillar World Bank description Nature Malaysia

0 – Non-contributory Basic social assistance financed by government so people with low lifetime income are cared for in old age State Social Welfare Department old-age financial aid, means-tested

1 – Mandatory, publicly managed Contributions linked to earnings to replace part of pre-retirement income; usually defined benefit , financed pay-as-you-go ; exposed to demographic and political risk Mandatory Not available in Malaysia, according to the study guide

2 – Mandatory, individual savings Typically defined contribution plans with choices of vehicles, managers and withdrawal options; clear link between contributions, performance and benefits Mandatory EPF, KWAP and LTAT

3 – Voluntary Many forms (defined benefit or contribution, individual savings); discretionary and flexible , filling gaps left by other pillars Voluntary PRS , unit trusts, fixed deposits and insurance, section 150 employer-sponsored schemes, additional EPF contributions , annuities, unfunded occupational gratuity schemes

4 – Non-financial Informal support: family support from the younger generation, universal healthcare, subsidised elderly housing, home ownership, reverse mortgages Voluntary Mainly traditional Asian values : the young caring for parents and elders

The first pillar's weakness

The study guide's example of a first pillar is Japan's national pension , which pays a basic pension to residents from age 65 . Such pay-as-you-go systems suffer demographic risk : as the population ages, fewer workers support more pensioners, contributions fall short and governments come under pressure to fund the gap.

The study guide also says Japan's basic pension is paid at 65 to people who have paid premiums for 25 years or longer . That detail is out of date: Japan cut the qualifying period to 10 years of total coverage in August 2017, and the Japan Pension Service now pays the Old-age Basic Pension from 65 on that basis. The point of the example is the demographic risk of pay-as-you-go funding. If a question repeats the 25-year figure, recognise it as the study guide's wording.

Why Malaysia Needs a Strong Third Pillar

PRS was introduced to supplement EPF (for employees) and other second-pillar schemes:

EPF does not cover everyone. It has comprehensive coverage of the employed and healthy returns, but it is not mandatory for the self-employed . PRS aims to encourage this group to save seriously.

EPF savings run out. Studies show most retirees exhaust their EPF lump sum within three to five years of retiring, made worse by pre-retirement withdrawals for housing, healthcare and education.

Concentration risk. Relying on a single source of retirement savings is risky. PRS adds another source of fund management expertise , and members can choose between competing providers .

Comparing the pillars' risks

• Pillar Who bears the main risk Typical weakness
• 0 – Social assistance Government budget Benefits are basic and means-tested

1 – Pay-as-you-go defined benefit Government and future workers Demographic and political risk as populations age

2 – Mandatory defined contribution The individual member Savings may be inadequate or withdrawn early; investment returns vary

3 – Voluntary saving The individual member Depends on people choosing to save; needs incentives and good products

4 – Family and informal support Families Weakens as families shrink and the population ages

A multi-pillar system spreads these risks so that no single weakness leaves retirees without income.

The fourth pillar is weakening

Family support works when many young people support a few elderly. In an ageing society, the burden on fewer young people grows enormous, which is another reason to build self-funded voluntary saving (section 7B.4).

A Diagram of the Malaysian Mapping

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Applying It

Case: Encik Rosli, 42, is a self-employed graphic designer with no EPF account. Under the World Bank framework he has no mandatory second-pillar savings , so apart from means-tested aid (pillar zero) and family support (pillar four), his retirement depends on what he saves voluntarily. PRS gives him a third-pillar vehicle with a choice of providers and funds, tax relief of up to RM3,000 a year and withdrawal rules that discourage spending the money early. (He could also consider EPF's voluntary i-Saraan programme for the self-employed, covered in section 7B.3.)

Exam Pointers

Pillar 0 = social assistance (Social Welfare Department).

Pillar 1 = not available in Malaysia.

Pillar 2 = EPF, KWAP, LTAT.

Pillar 3 = PRS (plus other voluntary savings).

Pillar 4 = family support.

Classification Traps

The pillar depends on how the saving happens , not on which institution holds the money:

• Item Pillar in the study guide Why it catches candidates
• Mandatory EPF contributions 2 The obvious second-pillar scheme
• Additional voluntary contributions to EPF 3 Same institution as pillar 2, but the extra saving is voluntary
• KWAP and LTAT 2 Public-sector bodies, yet grouped with EPF as mandatory schemes

Employer-sponsored schemes approved under section 150 of the Income Tax Act 1967 3 Run by employers, but voluntary

Annuities and unfunded occupational gratuity schemes 3 Listed with PRS as voluntary options

Home ownership and reverse mortgages 4 The World Bank's fourth pillar covers informal and non-pension support, so these are not third-pillar savings

The study guide describes the third pillar as discretionary and flexible : its flexibility makes up for the rigidity of the other pillars and lets each person top up whatever is missing from their own retirement plan.