Abstract
Purpose This paper aims to explore the challenges facing the development of a takāful retirement annuity plan in Malaysia. It also aims at exploring a new platform to re-launch the same product after being withdrawn from the Malaysian annuity market a few years ago. Design/methodology/approach The research adopts a qualitative approach to address the possible challenges hindering the development of a takāful retirement annuity plan in Malaysia. The research will not discuss the Sharīʿah issues deemed settled in previous researches but will only focus on technical challenges related to the instruments of investment and prudential measures. Findings The research found that various challenges face the development of a takāful annuity plan in Malaysia. Some of those challenges are the downsizing of the ṣukūk market, the shortage of long-term ṣukūk, longevity risk and risk-based capitalization. The research found that there is a need for a diversified portfolio of securities instead of solely using ṣukūk as an investment instrument in this product. Originality/value Re-launching the takāful annuity plan in Malaysia requires the identification of actual challenges facing the development of such a product. The product purported to be re-launched would benefit a large segment of retirees who do not have enough savings during the retirement age. The introduction of such a product will also expand the takāful market in annuities, which remains untapped.
Highlights
Annuities have long been perceived as back-up financial plans during retirement age and a means to reduce longevity risk when an individual outlives his/her assets
The product, which is sold by life insurance and investment companies, passes through two phases: an accumulation phase followed by an annuitization phase
Challenges of introducing takāful annuity plan in Malaysia From the practices of takāful annuity in Malaysia as well as some research outputs conducted on the feasibility of the proposed product, there is a need to assess the cited challenges of the proposed product and zoom in on the real challenges hindering the development of takāful annuities in Malaysia
Summary
Annuities have long been perceived as back-up financial plans during retirement age and a means to reduce longevity risk when an individual outlives his/her assets. The annuitant seeks to secure steady payouts during retirement age by trading liquid lump sums in return for a series of payments until he/she passes away. The product can include riders such as death benefits or a combination between fixed and variable annuities to protect against the shortfall of investing the annuity fund. The product, which is sold by life insurance and investment companies, passes through two phases: an accumulation phase followed by an annuitization phase. The contributions of the annuitants are accumulated, and the annuity fund is invested in long-term bonds with variant exposure to market risk. The stream of payments during retirement is
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