A STUDY OF VOLUNTARY RETIREMENT SAVINGS

BEHAVIOUR AMONG MUSLIM EMPLOYEES IN

KLANG VALLEY

BY

HANEFFA MUCHLIS GAZALI

A thesis submitted in fulfilment of the requirement for the

degree of Doctor of Philosophy

in Islamic Banking and Finance

IIUM Institute of Islamic Banking and Finance

International Islamic University Malaysia

OCTOBER 2018

i

ABSTRACT

The unprecedented increase in life expectancy, along with the demographic changes

over the last couple of decades, will intensify the need for adequate saving post-

retirement. Prior economic literature did not propose an explanation for the declining

saving for post-retirement. This study seeks to obtain the attributes influencing

voluntary retirement savings behaviour by explaining notions of retirement saving

awareness, financial literacy, personal financial planning, consumer religiosity, the

life-cycle theory of saving and theory of planned behaviour (TPB). This cross-

sectional study collects and analyses self-administered questionnaire survey data from

638 Muslim employees in Malaysia using Partial Least Square (PLS) technique. The

present study suggests that retirement saving awareness, personal financial planning,

income life-cycle, subjective norm, perceived behavioural control and behavioural

intention influence individuals’ voluntary retirement savings behaviour. However,

financial literacy, consumer religiosity, age varying contribution and attitude do not

significantly influence voluntary retirement savings behaviour. Drawing upon the

extended model of the life-cycle theory of saving and theory of planned behaviour,

this study partially supports that the life-cycle theory of savings predicts one’s

participation in voluntary retirement savings. Though attitude is an integral

component of human behaviour it does not correlate with the behavioural response on

economic consequences of voluntary retirement savings behaviour. The emerging

factors from this study would provide an ample evidence to the government, policy

makers, fund managers and financial planner in understanding consumer preference

and behaviour on voluntary retirement savings behaviour. This is important for the

aforementioned parties to work on policies and marketing strategies that can

encourage more people to save for their retirement. Voluntary retirement saving is an

emerging phenomenon in the developing countries like Malaysia. This study provides

detail analysis to gain deeper insight into factors explaining particular attributes of

voluntary retirement savings behaviour. This study contributes to the existing

literature and provides a fresh empirical perspective on voluntary retirement savings

behaviour from the Malaysian context. The findings of this study serve the guidelines

to enhance the performance of financial planner and industry in promoting voluntary

retirement savings in an emerging economy and developing country like Malaysia.

ii

خلاصة البحثABSTRACT IN ARABIC

دعي تستدين الماضيين دى العقلت على مالمتوقع والتغيرات الديموغرافية التي حص العمرالزيادة غير المسبوقة في متوسط دية ليسوا قتصادية التقليظرية الإون النالكافي للتقاعد. فالإقتصاديون الذين يتبن لزيادة حجم الادخارالحاجة الماسة إلى

ر على لتي تؤثالسمات اى تسعى هذه الدراسة للحصول عل قادرين على تفسير سبب الإنخفاض في الإدخار. لذلك،محو خرات التقاعد، و علق بمدالمت سلوك المدخرات التقاعدية الطوعية من خلال شرح المفاهيم المعاصرة فيما يخص الوعي

ر ونظرية السلوكللإدخا لحياةين المستهلك، ونظرية دورة االأمية المالية، والتخطيط المالي الشخصي، ومستوى تد يان لال استبات من خع البيانفي جم(. تعتمد هذه الدراسة المقطعية على منهجية البحث الكمي TPBالمخطط )لإحصائي االبرنامج خدام التحليل باستوتم موظفا مسلما في فلابوهن كلنج، 638جمعت البيانات من حيثشخصي.

(SMART-PLSتقترح هذه الدراسة أن التوعية المتعلقة بالإدخا .)لمالي لتخطيط ار من أجل التقاعد، واك ثر على سلو لها تؤ لوكية كيا الس، والقاعدة الذاتية، والسيطرة السلوكية المتصورة والنواحياة الدخلالشخصي ودورة

مار لك، وتفاوت الأعالمسته ينتد و الأفراد فيما يتعلق بمدخرات التقاعد الطوعية. بينما عوامل محو الأمية المالية، ة دورة ذج الموسع لنظري النمو دا إلىومواقف الأفراد لا تؤثر بشكل كبير على سلوك المدخرات التقاعدية الطوعية. واستنا

نها أن للمدخرات بإمكا الحياة دورة لسلوك المخططة، فإن هذه الدراسة تدعم جزئيا أن نظريةالحياة في الإدخار ونظرية اوك يتجزأ من السلو جزء لاراد هتتنبأ بمشاركة الفرد في المدخرات التقاعدية الطوعية. على الرغم من أن موقف الأف

لتقاعد. المتعلق بمدخرات لطوعي االوك تأثرة بالسالبشري، إلا أنه لا يرتبط بالاستجابة السلوكية للعواقب الإقتصادية المصانعي السياسات كومة و بل الحهذه العوامل الناشئة من هذه الدراسة ستوفر دليلا وافيا يمكن الإعتماد عليه من قا ذلاعدية الطوعية. ات التقلمدخر اومديري الصناديق والمخططين الماليين في فهم ما يفضله المستهلك وسلوكه فيما يخص

لتسويق التي من اتيجيات استرافنتائج هذا البحث مهمة بالنسبة للأطراف المذكورة آنفا للعمل على تنفيذ سياسات و اشئة في البلداننظاهرة تقاعدشأنها أن تشجع المزيد من الناس على الإدخار من أجل تقاعدهم. والإدخار الطوعي لل

وك سمات معينة لسل تي تفسرمل التفصيليًا لتقديم فهم أعمق للعوا النامية مثل ماليزيا. تقدم هذه الدراسة تحليلًا لوك سيبيا جديدا على ورا تجر ر منظالمدخرات التطوعي. تعتبر هذه الدراسة إضافة نوعية للأدبيات الموجودة سابقا وتوف

طط المالي تحسين أداء المخل شاديةد الإر نتائج هذه الدراسة تخدم القواعالمدخرات التقاعدية الطوعية في السياق الماليزي. زيا.ثل ماليملنامية والبلدان ا في الاقتصادات الناشئةالمدخرات التقاعدية الطوعية والخبراء في تعزيز

iii

APPROVAL PAGE

The thesis of Haneffa Muchlis Gazali has been approved by the following:

_____________________________

Syed Musa Syed Jaafar Al-Habshi

Supervisor

_____________________________

Adewale Abideen Adeyemi

Co-Supervisor

_____________________________

Adam Abdullah

Internal Examiner

_____________________________

Mohamad Fazli Sabri

External Examiner

_____________________________

Saidatulakmal Mohd

External Examiner

_____________________________

Radwan Jamal Yousef Elatrash

Chairman

iv

DECLARATION

I hereby declare that this thesis is the result of my own investigations, except

where otherwise stated. I also declare that it has not been previously or concurrently

submitted as a whole for any other degrees at IIUM or other institutions.

Haneffa Muchlis Gazali

Signature ........................................................... Date .........................................

v

COPYRIGHT PAGE

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF

FAIR USE OF UNPUBLISHED RESEARCH

A STUDY OF VOLUNTARY RETIREMENT SAVINGS

BEHAVIOUR AMONG MUSLIM EMPLOYEES IN KLANG

VALLEY

I declare that the copyright holders of this thesis are jointly owned by the student and

IIUM.

Copyright © 2018 Haneffa Muchlis Gazali and International Islamic University Malaysia. All rights

reserved.

No part of this unpublished research may be reproduced, stored in a retrieval system,

or transmitted, in any form or by any means, electronic, mechanical, photocopying,

recording or otherwise without prior written permission of the copyright holder

except as provided below

1. Any material contained in or derived from this unpublished research may

be used by others in their writing with due acknowledgement.

2. IIUM or its library will have the right to make and transmit copies (print

or electronic) for institutional and academic purposes.

3. The IIUM library will have the right to make, store in a retrieved system

and supply copies of this unpublished research if requested by other

universities and research libraries.

By signing this form, I acknowledged that I have read and understand the IIUM

Intellectual Property Right and Commercialization policy.

Affirmed by Haneffa Muchlis Gazali

……..…………………….. ………………………..

Signature Date

vi

ACKNOWLEDGEMENT

In the name of Allah, the Most Compassionate and the Most Merciful. All praises be

to Allah for the abundant blessing and giving me the strength to complete my PhD

journey at International Islamic University Malaysia (IIUM).

Firstly, I would dedicate my utmost appreciation to my supervisor, Associate

Professor Dr. Syed Musa Syed Jaafar Alhabshi for his support, exceptional guidance,

deliberation and encouragement. My gratitude goes to Associate Professor Dr.

Adewale Abideen Adeyemi, for his inspiration, care, constructive comments and

assistance throughout my candidature in IIUM. Without their guidance, this thesis

would not have become a reality.

I would like to thank to Associate Professor Dr. Hanudin Amin for his constant

encouragement, who inspires me to accomplish my study. My appreciation also goes

to the lectures and administrative staff at IIiBF for their generous help and support

during my PhD study. My special thanks to the respective officers at the Employees

Provident Fund (EPF) for their cooperation and assistance during the data collection. I

would also like to extend my appreciation to Hayatun Mustapha and Khairul Anwar

Khairudin who assisted me in data collection.

I am also grateful to my sponsor, Universiti Malaysia Sabah and the Ministry

of Higher Education, Malaysia who provide me the funding for my PhD study.

Special thanks to my friends at IIUM, my colleagues at Universiti Malaysia Sabah

Labuan International Campus, the respondents who have participated in my pilot

testing and the actual survey, without their participation this study would not be

successful.

Most fundamentally, I would like to dedicate this work to my family,

especially to my beloved husband; Dr. Tamrin Amboala for his unconditional love,

care, patience, support, understanding and prayers. I am indebted to my lovely

parents; Muchlis Gazali Taing and Siti Amina Rasina, my siblings; Rafidah Muchlis

Gazali and Mahathir Muchlis Gazali, in-laws, for their tremendous encouragement,

assistance, understanding and endless prayers for my success.

Last but not least, I would like to express my gratefulness to those who

provide their effort, time and support either directly or indirectly in completing this

thesis. Lastly, I would like to all my friends for their companionship, namely,

Norazidah Shamsudin, Shahiru Syafi’ai, Nabil Bello and Abdellah Ussi, this journey

would have been bored and lonely without all of you.

May Allah, accept this piece of humble work. I really hope that this work will render

benefit to someone in the near future. God bless you all!

vii

TABLE OF CONTENT

Abstract ...................................................................................................................... i Abstract in Arabic ...................................................................................................... ii Approval Page ............................................................................................................ iii Declaration ................................................................................................................. iv

Copyright Page ........................................................................................................... v Acknowledgement ..................................................................................................... vi List of Tables ............................................................................................................. x List of Figures ............................................................................................................ xiii List of Abbreviation ................................................................................................... xiv

CHAPTER ONE: INTRODUCTION .................................................................... 1 1.1 Background of the Study ........................................................................... 1

1.2 Problem Statement ..................................................................................... 5 1.3 Research Objectives .................................................................................. 9 1.4 Research Questions.................................................................................... 9

1.5 Significance of the Study ........................................................................... 10 1.6 Operational Definition of Constructs ........................................................ 13 1.7 Organization of Thesis............................................................................... 14

CHAPTER TWO: LITERATURE REVIEW ....................................................... 15 2.1 Introduction ............................................................................................... 15 2.2 Retirement Definition ................................................................................ 15 2.3 Retirement Planning .................................................................................. 17

2.4 Background of Retirement Schemes in Malaysia ...................................... 18

2.5 Resources of Retirement Income ............................................................... 23 2.5.1 Social Security Organization (SOCSO) .......................................... 24 2.5.2 Government Pension Plan (Define Benefit/Pension) ...................... 25 2.5.3 Employees Provident Fund (Define Contribution) ......................... 27

2.5.4 Private Retirement Savings ............................................................. 28 2.6 Overview of Islamic Wealth Management and Financial Planning .......... 29

2.6.1 Development of Islamic Wealth Management in Malaysia ............ 31 2.6.2 Maqasid al-Shari’ah in Wealth Management ................................. 32

2.6.2.1 The Essentials (Al Darruriyat) ............................................ 34

2.6.2.2 The Complementary (Hajiyyat) .......................................... 38 2.6.2.3 The Embellishments (Tahsiniyyat) ..................................... 39

2.6.3 Islamic Financial Planning .............................................................. 39 2.6.4 Concepts of Retirement Planning from the Shari’ah

Perspective .................................................................................... 42

2.6.4.1 Wealth and Management Concepts Derived from

Selected Verses of the Qur’an ............................................ 43

2.6.4.2 Wealth and Management Concepts Derived from

Selected Hadith ................................................................... 45 2.6.4.3 Challenges in ensuring Shari’ah compliant retirement

portfolio .............................................................................. 47 2.6.4.4 Handling the surplus ........................................................... 47

viii

2.7 Conclusion ................................................................................................. 48

CHAPTER THREE: THEORETICAL FRAMEWORK AND

HYPOTHESIS DEVELOPMENT ......................................................................... 50 3.1 Introduction ............................................................................................... 50

3.1.1 Proposed Theoretical Framework ................................................... 51 3.2 Voluntary Retirement Savings Behaviour ................................................. 51 3.3 Determinants of Voluntary Retirement savings behaviour ....................... 54

3.3.1 Retirement Saving Awareness ........................................................ 54

3.3.2 Financial Literacy ........................................................................... 58 3.3.3 Personal Financial Planning ............................................................ 61 3.3.4 Consumer Religiosity ...................................................................... 63

3.4 Theoretical Consideration .......................................................................... 66 3.4.1 The Life-Cycle Theory of Saving ................................................... 67

3.4.2 Theory of Planned Behaviour ......................................................... 71

3.4.2.1 Attitude ............................................................................... 72

3.4.2.2 Subjective Norm ................................................................. 75 3.4.2.3 Perceived Behavioural Control ........................................... 77 3.4.2.4 Behavioural Intention ......................................................... 80

3.5 Justification of the Theory Use .................................................................. 83

3.5.1 The Life-Cycle Theory of Saving ................................................... 84 3.5.2 Theory of Planned Behaviour (TPB) .............................................. 86

3.6 Conclusion ................................................................................................. 90

CHAPTER FOUR: RESEARCH METHODOLOGY ......................................... 91 4.1 Introduction ............................................................................................... 91 4.2 Philosophical Underpinning ...................................................................... 91

4.3 Research Design ........................................................................................ 92

4.4 Target Population and Sampling Frame .................................................... 93

4.5 Sampling Procedure and Sample Size ....................................................... 94 4.6 Pilot Testing ............................................................................................... 96

4.7 Data Collection .......................................................................................... 97

4.8 Measurement of Construct ......................................................................... 98 4.8.1 The Variables of the Study.............................................................. 99

4.8.1.1 Voluntary Retirement Savings Behaviour .......................... 99 4.8.1.2 Retirement Saving Awareness ............................................ 100 4.8.1.3 Financial Literacy ............................................................... 101

4.8.1.4 Personal Financial Planning ............................................... 102 4.8.2 Consumer Religiosity ...................................................................... 103

4.8.2.1 Income Life-Cycle .............................................................. 104 4.8.2.2 Age Varying Contribution .................................................. 104 4.8.2.3 Attitude ............................................................................... 105

4.8.2.4 Subjective Norm ................................................................. 106 4.8.2.5 Perceived Behavioural Control ........................................... 107 4.8.2.6 Behavioural Intention ......................................................... 107

4.8.3 Questionnaire Design ...................................................................... 108

4.9 Data Analysis ............................................................................................. 109 4.9.1 Measurement Model ....................................................................... 109 4.9.2 Structural Analysis .......................................................................... 110

ix

4.10 Overview of Data Collected .................................................................... 110

4.10.1 Data Cleaning and Screening ........................................................ 111 4.10.2 Normality Test .............................................................................. 112 4.10.3 Assessing for the Outliers ............................................................. 113

4.10.4 Multicollinearity Test .................................................................... 113 4.10.5 Respondent’s Profile ..................................................................... 115

4.11 Conclusion ............................................................................................... 117

CHAPTER FIVE: RESEARCH FINDINGS ........................................................ 118 5.1 Introduction ............................................................................................... 118 5.2 Preliminary Analyses ................................................................................. 118

5.2.1 Assessing the Mean and Standard Deviation .................................. 118 5.3 Measurement Model (PLS-SEM) .............................................................. 130

5.3.1 Assessment of the Reflective Measurement Model: Before and

After Deletion ................................................................................. 131

5.4 Structural Analysis .................................................................................... 145

5.4.1 Structural Equation Modelling ........................................................ 145 5.5 Summary .................................................................................................... 151 5.6 Conclusion ................................................................................................. 161

CHAPTER SIX: CONCLUSION ........................................................................... 163 6.1 Introduction ............................................................................................... 163

6.2 Summary and Discussion of Major Findings ............................................ 163 6.2.1 Retirement Saving Awareness (H1), Financial Literacy (H2),

Personal Financial Planning (H3) and Consumer Religiosity

(H4) for Voluntary Retirement Savings Behaviour ........................ 164 6.2.2 Income Life-Cycle (H5) and Age Varying Contribution (H6)

from the Life-Cycle Theory of Savings for Voluntary

Retirement Savings Behaviour ....................................................... 167

6.2.3 Attitude (H7), Subjective Norm (H8), Perceived Behavioural

Control (H9) and Behavioural Control (H10) from TPB for

Voluntary Retirement Savings Behaviour ...................................... 168

6.3 Contributions of the Study ......................................................................... 171 6.3.1 Theoretical Contribution ................................................................. 171

6.3.2 Practical Contributions .................................................................... 173 6.3.3 Methodological Contributions ........................................................ 174

6.4 Limitation and Suggestions for Future Research ...................................... 175

6.5 Conclusion ................................................................................................. 178

REFERENCES ......................................................................................................... 180

APPENDIX I: COPIES OF COVER LETTER AND RESEARCH

QUESTIONNAIRE FOR RESPONDENTS ....................................... 202

APPENDIX II: ESEARCH OUTPUT FREQUENCY FOR THE

RESPONDENT ............................................................................... 214

APPENDIX III: RESEARCH OUTPUT TOTAL VARIANCE EXPLAIN ................... 217

APPENDIX IV: OUTPUT FACTOR LOADINGS BEFORE DELETION .................... 219

APPENDIX V: RESEARCH OUTPUT FACTOR LOADINGS AFTER

DELETION ..................................................................................... 221

x

LIST OF TABLES

Table 1.1 Operational Definition of Constructs 13

Table 2.1 The Development Phases of Retirement Scheme in Malaysia 19

Table 2.2 Main Types of Social Security Program in Southeast Asia 23

Table 4.1 Target Population 94

Table 4.2 Enumerators/ Research Assistants 96

Table 4.3 Measurement Items for Voluntary Retirement Savings Behaviour 100

Table 4.4 Measurement Items for Retirement Saving Awareness 101

Table 4.5 Measurement Items for Financial Literacy 101

Table 4.6 Measurement Items for Personal Financial Planning 102

Table 4.7 Measurement Items for Consumer Religiosity 103

Table 4.8 Measurement Items for Income Life-Cycle 104

Table 4.9 Measurement Items for Age Varying Contribution 105

Table 4.10 Measurement Items for Attitude 105

Table 4.11 Measurement Items for Subjective Norm 106

Table 4.12 Measurement Items for Perceived Behavioural Control 107

Table 4.13 Behavioural Intention 108

Table 4.14 Normality Test 112

Table 4.15 Pearson Correlation 114

Table 4.16 Collinearity Statistics 115

Table 4.17 Profile of Respondents 116

Table 5.1 Descriptive Statistics for Voluntary Retirement Savings Behaviour 119

Table 5.2 Descriptive Statistics for Retirement Saving Awareness 120

Table 5.3 Descriptive Statistics for Financial Literacy 121

xi

Table 5.4 Descriptive Statistics for Personal Financial Planning 122

Table 5.5 Descriptive Statics for Consumer Religiosity 123

Table 5.6 Descriptive Statistics for Income Life-Cycle 124

Table 5.7 Descriptive Statistics for Age Varying Contribution 125

Table 5.8 Descriptive Statistics for Attitude 126

Table 5.9 Descriptive Statistics for Subjective Norm 127

Table 5.10 Descriptive Statistics for Perceived Behavioural Control 128

Table 5.11 Descriptive Statistics for Behavioural Intention 129

Table 5.12 PLS Factor Loading of Voluntary Retirement Savings Behaviour 131

Table 5.13 PLS Factor Loading of Retirement Saving Awareness 132

Table 5.14 PLS Factor Analysis of Financial Literacy 133

Table 5.15 PLS Factor Analysis of Personal Financial Planning 134

Table 5.16 PLS Factor Analysis of Consumer Religiosity 135

Table 5.17 PLS Factor Analysis of Income Life-Cycle 136

Table 5.18 PLS Factor Analysis of Age Varying Contribution 137

Table 5.19 PLS Factor Analysis of Attitude 137

Table 5.20 PLS Factor Analysis of Subjective Norm 138

Table 5.21 PLS Factor Analysis of Perceived Behavioural Control 139

Table 5.22 PLS Factor Analysis of Behavioural Intention 140

Table 5.23 PLS Discriminant Validity for Fornell-Larcker Criterion 141

Table 5.24 PLS Discriminant Validity for Cross Loadings 142

Table 5.25 PLS Discriminant Validity for Heterotrait-Monotriat Ratio 144

Table 5.26 Rule of Thumb for Structural Equation Model Evaluation 146

Table 5.27 Results of Path Coefficient and Hypotheses Testing 146

Table 5.28 Results of R2 148

xii

Table 5.29 Results of Effect Size of f 2 149

Table 5.30 Results of Q2 149

Table 5.31 Summary Results of Hypotheses Testing 151

Table 6.1 The Summary of Research Objectives, Hypotheses and Results 163

xiii

LIST OF FIGURES

Figure 2.1 Levels of Maqasid (Goals) al-Shari’ah 33

Figure 3.1 Proposed Theoretical Framework 51

Figure 5.1 Structural Model 150

xiv

LIST OF ABBREVIATION

AVC Age Varying Contribution

BI Behavioural Intention

CR Consumer Religiosity

EPF Employees Provident Fund

FL Financial Literacy

HTMT Heterotrait-Monotrait Ratio

ILC Income Life-Cycle

KL Kuala Lumpur

PBC Perceived Behavioural Control

PFP Personal Financial Planning

RSA Retirement Saving Awareness

SPSS Statistical Package for Social Science

TPB Theory Planned Behaviour

1

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Many countries around the world are now experiencing the trend of ageing

population. The growing number of ageing population in South-East Asian countries,

including Malaysia calls for an urgent attention to protect the security of senior

citizens. The decline in fertility and increase in longevity cause significant

demographic changes in the population and this phenomenon affects the national

development of the countries, especially in both economic and social aspects.

Malaysia is expected to be an aged nation in 2030, where out of the total population,

14 per cent will be projected as the elderly aged 60 years and above. In this regard,

people now are living longer than before: the average life expectancy for men was

74.8 years in 2015 compared to 62.2 years in 1970, while, life expectancy of women

was 66.5 years in 1970 and increased to 77.4 years in 2015 (Department of Statistic

Malaysia, 2015).

The increasing number of elderly population projects great dependency rate

to the government, as the elders will rely on the government for pension and medical

care. Thus, government in many countries have made various reforms on their

pension system, such as extending pension eligibility ages, reduction in pension

benefit and expanding the premium rate (Lee, Ogawa, & Matsukura, 2016).

Furthermore, there is a trend across the globe in which the government and

employers modify their pension schemes and transfer the financial risk to the

2

employees (Jamaludin & Gerrans, 2015; Vickerstaff & Cox, 2005). As a

consequence, private retirement saving has become more popular in many countries

as it plays a vital role in retirement planning (Johannisson, 2008).

The need to sustain available and sufficient resources for an employee

retirement years has received immense attention lately due to the increase in the

number of elderly populations. Researchers have found that many workers are not

saving enough for their retirement and many of them depend on social security to

survive in their retirement years (Hassan et al., 2016; Purcell, 2004). There are many

reasons that contribute saving deficiencies such as low-wage, higher cost of living

and ever increasing inflation rate (Chong & Khong, 2018; Othman, Khatijah,

Sapora, Zulkiple, & Jusoff, 2013). The trend of a shortfall in retirement savings calls

for an urgent attention to understand the reasons behind this worrying phenomenon.

Saving refers to the consumption that is less than the individual earnings. The

definition of voluntary retirement savings adopted for this study is based on the

definition of private retirement savings provided by Malaysian Securities

Commission. Private retirement schemes are defined as the savings made by sole

purpose, building up long term savings for retirement that does not include pension

fund or retirement fund established by the Federal Government (Securities

Commission Malaysia, 2012). Sieczkowski (2015) delineated the voluntary

retirement savings into few aspects such as occupational, voluntary, private or

personal pension schemes.

In addition to Pension Scheme or Employees Provident Fund, voluntary

retirement savings is additional options to public and private sector workers in

Malaysia. The Define benefit (DB) is a traditional pension, which is fully funded by

the government and is available for employees in the public sector. The public sector

3

employees are not required to make any contribution to the fund that is catered for

workers in the private sectors. The DC plan requires individuals to make their own

investment risk and they have to bear the full risk of financial loss (Adams & Rau,

2011).

Under the DC plan, the employers and employees contributions to the EPF

are based on the DC formula. These two major types of employee’s retirement

income have different methods of payment where the public servant will receive

their pension on a monthly basis, while the EPF is paid out in a lump sum to the

contributors from Account II once they reached 50 years old with the remaining

savings paid out on the last day of their service. Pertaining to the methods of

payment for both two schemes, the pension scheme is more secure compared to the

EPF scheme. This is due to the fixed contribution that the pensioner receives from

the percentage of their final salary and the return is determined based on the

accumulation of assets over the period (Ja’afar & Daly, 2016).

In this light, despite the different types of mandatory savings, voluntary

retirement savings behaviour is also influenced by the policy mandated by the

government. Khan and Abdullah (2010) argued that a country’s policies will affect

individuals decision on participating on voluntary retirement savings. It was pointed

out that the government policies play a vital role in encouraging individuals to save

for their retirement by providing a wide range of instruments with more incentives

and opportunities. The government should monitor the factors affecting savings and

comprehend the related framework to establish an effective policy that can boost the

economic growth (H. H. A. Khan & Abdullah, 2010).

In Malaysia, the government takes an initiative to support low income

earners, especially those who are self-employed and the elderly by introducing two

4

retirement schemes, 1Malaysia Retirement Savings Scheme and the Private

Retirement Scheme in 2010 and 2012, respectively (Abd Samad, Awang, & Mansor,

2013). Moreover, in 2013 the government also revised the Minimum Retirement Age

Act 2012 for Malaysian employees where the minimum retirement age for Malaysian

employees was increased to 60. The government’s restructuring of this Act is to

overcome the negative effect of government’s deficit and to allow individuals to

adjust their savings so that the individuals can maintain their standard of living in

retirement years.

In addition to government’s policies and its role in increasing voluntary

retirement savings, the corporate sector is also involved in overcoming these issues.

For instance, the Malaysian insurance industry has made serious attempts to lobby

the government to set up a private pension fund back in 2004 (Habibah, 2012), which

led to a comprehensive study proposal. However, employees were still hesitant to

contribute to the private retirement funds. This is because employees were unsure

about the type of plan to choose and they need further clarification from the

government pertaining to the restructuring the Malaysian retirement system.

Although, the government and corporate sector have tried their very best to increase

voluntary retirement savings among the Malaysian the results are not satisfactory and

many individuals retire with insufficient retirement savings (Vaghefi, Kari, & Talib,

2016).

In relation to the discussion above, Bosworth, Burtless and Sabelhaus (1991)

claimed that it is not fair to only look into the macroeconomic factors to judge the

retirement saving deficit. They asserted that several empirical results showed that

microeconomic factors also significantly contribute to the decline in private

retirement savings. Therefore, the current study will combine and extend two

5

theories, the Life-Cycle Theory of Saving and the Theory of Planned Behaviour to

investigate the factors that influence voluntary retirement savings behaviour among

the Muslim employees in Malaysia.

1.2 PROBLEM STATEMENT

Rapid demographic changes and the growing numbers of elderly population in many

countries around the world pose great challenges to the government. The escalating

numbers of elderly in the population has a huge impact to the expenditure and the

socio-economic development of a particular country. Over the last few decades, the

improvement in health care and lifestyle, as well as the changes in fertility rates has

improved the average life expectancy. Statistics show that between 2011 and 2017,

average life expectancy had increased by 0.6 years for men and 0.8 years for women.

In 2017, the life expectancy for male is 72.7 and 77.4 for female (Department of

Statistics Malaysia, 2017).

The large number of elderly population will increase the old-age dependency

rate. Based on the projection of the dependency ratio in Malaysia, in 1950s, the old-

age dependency ratio was 9.4 per cent, and this ratio is projected to increase up to

25.0 per cent by 2050 (United Nations Department of Economic and Social Affairs,

2010). The figure indicates that more individuals are going to be dependent towards

the government in the future with the traditional family and social structure will

vanish in most society due to urbanisation and modernisation (Vlachantoni &

Falkingham, 2011). Consequently, the erosion of traditional values in the society

means that children and the society will no longer be inclined to look after the

elderly. Thus, the government continuously updates its pension policy in order to

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tackle the issue of elderly dependency ratio and reduce the burden of having a

growing number of older populations in the society.

The common problem of many employees in Malaysia is that they are

completely dependent on mandatory saving or the retirement benefit provided by the

government to sustain their standard of living after retirement. Thus, retirement

benefits is a significant concern for employees, both before and after retirement

(Hassan et al., 2016). This phenomenon magnifies the importance of the voluntary

retirement savings as they are considered as individual savings that will supplement

the pay-as-you-go pension. In the meantime, Malaysian statistics indicate that 70 per

cent of active members of Employees Provident Fund aged 54 years had less than

RM50,000 in their accounts and 68 per cent active members scheduled for retirement

do not achieve basic savings (Employee Provident Fund, 2018). Furthermore, a

survey conducted by iMoney among the Malaysian millennials in 2015, revealed that

49 per cent of the respondents consider retirement saving as their last priority

(Borneo Post Seeds, 2017). The survey also showed that the millennials blame the

high cost of living and the current economic downtown as the cause for the lack of

retirement savings.

Several studies have demonstrated that Malaysian employees have a very

little saving for their retirement (Ibrahim, Isa, & Ali, 2012; Jamaludin, 2012;

Kuotronas & Ismail, 2016; Mahdzan & Tabiani, 2013; Sabri, Juen, Fazli Sabri, &

Tze Juen, 2014). For instance, Jariah, Husna, Tengku Aizan and Rahimah (2012)

discovered that the absence in mandatory retirement and limited coverage of social

security system in the country have exposed the elderly to poverty. In their study

among the elderly in Malaysia, they discovered that most of their respondents are

having problems related to daily finances and credit problems. As daunting as that

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sounds, many respondents in the study stated that they are unable to save and reach

the minimum saving limits and never have any goals to maximise the returns from

their savings. Furthermore, 71 per cent of the respondents asserted that they had

reached the maximum limits for their credits (Jariah et al., 2012).

In relation to this, the low retirement saving rate among Malaysian employees

is worrying and is an indicator of the lack of proper retirement planning.

Consequently, the low saving rate has significant implications towards the socio-

economy well-being of Malaysian citizens and consequently the nation will face

serious financial problem in the event of an economic crisis (Abd Samad et al.,

2013). Furthermore, the increase in life expectancy and living expenditure, as well as

the lack of private investment experience could increase financial vulnerability

among the elderly (Caraher, 2000). Although the poverty rate in Malaysia, has

progressively declined (Jariah et al., 2012), the issue of poverty remains as a

challenging matter, especially among for the older generation. Therefore, in order to

ensure Malaysian retirees have adequate income to sustain their standard of living

after retirement, there is an urgent need to understand the voluntary retirement

savings behaviour among the Muslim employees in Malaysia.

The present study examines the determinants of voluntary retirement savings

behaviour of Muslim employees in Klang Valley. The respondents for this study

were limited to Muslim employees, as this study attempts to examine the relevance

of the consumer religiosity in determining their voluntary retirement savings.

Previous studies on savings behaviour, retirement savings or retirement planning

focused on student of higher learning institution (Abdul Jamal, Ramlan, Abdul

Karim, Mohidin, & Osman, 2015), private sector employees (Ridhwan, Mohamed,

Masdinar, & Hisyam, 2017), medical practitioners (Rajna, Ezat, Junid, & Moshiri,

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2011), academics’ (M.-M. Lai, Lai, & Lau, 2009) from various perspectives and

beliefs, not focusing on Muslim employees point of view.

Malaysia is considered as a heterogeneous population with the multi-

religious, multi-racial and multi-cultural country, comprising Malay, Chinese, Indian

and the native people of Sabah and Sarawak. The majority of Malaysian population

are Muslims with 61.3 per cent of the total population, followed by Buddha 19.8 per

cent, Christian 9.2 per cent, Hindu 6.3 and others 3.4 per cent (Department of

Statistics Malaysia, 2011). The influence of religion on people’s lives is immense

and it affects the way they think and behave. Taken culture as the most basic factors

that shape human desire and behaviour, religion is part of the culture that become the

major determinants that influencing consumer behaviour (Alam et al., 2011). For

instance, Ismail et al. (2015) conducted a mixed methods study on savings behaviour

determinants among Muslims in Malaysia. However, the study discussed savings

behaviour in general.

In addition, a recent study addresses debt-ridden behaviour among Muslims

in Klang Valley revealed that these peoples are taking the loan beyond their

repayment capacity and have an excessive attitude towards spending without

consideration (Othman et al., 2013). Having a debt-ridden behaviour, it is an

indication of people are not being able to save as they use the available resources to

fulfil their desires. Thus, living in the city can be very challenging for individuals in

terms of the healthy financial situation. Being stuck with heavy financial burden

would definitely shrinking the individual’s capability to save for future needs like

retirement. To date, there has been no reliable evidence that suggests the voluntary

retirement savings behaviour among Muslim employees. Thus, this study keen to

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address the voluntary retirement savings behaviour among Muslim employees in

Klang Valley.

1.3 RESEARCH OBJECTIVES

As mentioned, the main aim of this study is to investigate the attributes that influence

voluntary retirement savings behaviour. Therefore, the specific objectives of this

study are;

1. To examine the determining factors of voluntary retirement savings

behaviour among Muslim employees in Malaysia.

2. To analyse the effects of income life cycle on voluntary retirement savings

behaviour among Muslim employees in Malaysia.

3. To analyse the effects of age varying contribution on voluntary retirement

savings behaviour among Muslim employees in Malaysia.

4. To analyse the effects of Theory of Planned Behaviour constructs of attitude,

subjective norm, perceived behavioural control and behavioural intention in

savings on the voluntary retirement savings behaviour among the Muslim

employees in Malaysia.

1.4 RESEARCH QUESTIONS

The study aims to provide an understanding on the employees’ voluntary retirement

savings behaviour in Malaysia. The followings research questions are formulated in

order to fulfil the objectives of the study

1. What are the factors that determine the voluntary retirement savings

behaviour among the Muslim employees in Malaysia?