SAINS MALAYSIANA

Sains Malaysiana 55(7)(2026): 1211-1221

http://doi.org/10.17576/jsm-2026-5507-09

From Defined Contribution Plan to Defined Benefit Plan: Modelling a Retirement Fund for a Few Case Studies in Malaysia

(Daripada Pelan Caruman Tertakrif kepada Pelan Manfaat Tertakrif: Memodelkan Dana Persaraan untuk Beberapa Kajian Kes di Malaysia)

NOR MARIYAH ABDUL GHAFAR^1,2,*, NORISZURA ISMAIL², RAZIK RIDZUAN MOHD TAJUDDIN² & ABDUL AZIZ JEMAIN²

¹Center of Mathematical Sciences, Faculty of Computer and Mathematical Sciences,Universiti Teknologi MARA (UiTM) Perak Branch, Tapah Campus, 35400 Tapah Road, Perak, Malaysia

²Department of Mathematical Sciences, Faculty of Science and Technology, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor, Malaysia

Received: 20 January 2025/Accepted: 16 June 2026

Abstract

Defined benefit (government pension) and defined contribution (Employee Provident Fund (EPF)) plans are Malaysia's two main types of mandatory retirement plans. The discontinuation of pension eligibility for newly appointed permanent civil servants has raised concerns about retirement income sustainability. This study models a defined contribution retirement fund for future retirees in Malaysia by estimating the accumulated retirement fund at retirement, projected monthly pension amounts, and the duration of retirement fund adequacy. A financial mathematics approach implemented in RStudio is applied using salary structures for individuals with Sijil Pelajaran Malaysia (SPM), diploma, and degree qualifications. The results show that a higher educational background yields larger accumulated retirement funds, estimated at RM701,494, RM910,827, and RM1,273,478 for SPM, diploma, and degree holders, respectively, at the baseline 5% annual return assumption. However, larger retirement funds do not necessarily mean longer sustainability. Degree holders are projected to sustain their funds for only 24.8 years, compared with diploma holders (26.4 years) and SPM holders (28.1 years), due to higher pension withdrawals. Sensitivity analysis indicates that retirement fund adequacy is highly responsive to investment returns. Estimated fund duration ranges from 10.7 to 14.7 years at a 3% return rate but exceeds 100 years under most scenarios at a 7% return rate. Higher lump-sum withdrawals generally reduce fund sustainability, particularly under lower return rates. The results highlight the importance of prudent withdrawal strategies and effective retirement planning to support long-term retirement adequacy.

Keywords: Annuity; defined benefit; defined contribution; pension; retirement fund

Abstrak

Pelan manfaat tertakrif (pencen kerajaan) dan caruman tertakrif (Kumpulan Wang Simpanan Pekerja (KWSP)) ialah dua jenis pelan persaraan mandatori utama Malaysia. Pemberhentian kelayakan pencen bagi penjawat awam tetap yang baharu telah menimbulkan kebimbangan mengenai kemampanan pendapatan persaraan. Kajian ini memodelkan dana persaraan caruman tertakrif untuk bakal pesara di Malaysia dengan menganggarkan dana persaraan terkumpul semasa persaraan, unjuran jumlah pencen bulanan dan tempoh kecukupan dana persaraan. Pendekatan matematik kewangan dilaksanakan menggunakan RStudio berdasarkan struktur gaji individu dengan kelayakan Sijil Pelajaran Malaysia (SPM), diploma dan ijazah sarjana muda. Keputusan menunjukkan bahawa latar pendidikan yang lebih tinggi mengumpul dana persaraan yang lebih besar dianggarkan sebanyak RM701,494, RM910,827 dan RM1,273,478 masing-masing bagi pemegang SPM, diploma dan ijazah, pada asas andaian pulangan tahunan 5%. Walau bagaimanapun, dana persaraan yang lebih besar tidak bermakna kemampanan yang lebih lama. Pemegang ijazah diunjurkan mengekalkan dana mereka hanya selama 24.8 tahun, berbanding pemegang diploma (26.4 tahun) dan pemegang SPM (28.1 tahun), berikutan pengeluaran pencen yang lebih tinggi. Analisis sensitiviti menunjukkan bahawa kecukupan dana persaraan sangat responsif terhadap pulangan pelaburan. Anggaran tempoh dana antara 10.7 hingga 14.7 tahun pada kadar pulangan 3% tetapi melebihi 100 tahun di bawah kebanyakan senario pada kadar pulangan 7%. Pengeluaran sekali gus yang lebih tinggi secara amnya mengurangkan kemampanan dana, terutamanya di bawah kadar pulangan yang lebih rendah. Hasil kajian menekankan kepentingan strategi pengeluaran berhemat dan perancangan persaraan yang berkesan untuk menyokong kecukupan persaraan jangka panjang.

Kata kunci: Anuiti; dana persaraan; faedah tertakrif; manfaat tertakrif; pencen

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*Corresponding author; email: norma674@uitm.edu.my