Optimal Investment Policy for Pension Annuitants in Malaysia under Economic Exposure

Abstract

This research has conducted a profound evaluation into the annuity market in Malaysia from both the business and individual perspective. To a great extent, analysis is made on how the annuity insurers could better maintain the solvency level of annuity fund which is exposed under significant economic risks by obtaining an optimal fund allocation to maximise investment returns through the development of Asset-Liability Management (ALM). By adapting the concept from Wilkie model, six fundamental models including inflation rate, real interest rate, KLCI stock return, KLCI stock dividend yield, 10-year MGS return as well as Malaysian property return were formulated accordingly to the Box-Jenkins modelling approach. It concludes that the optimal weightages combination suggests that the annuity insurers should allocate 94% of the single premium such as RM100,000 which collected from the annuitant to bond market, whereas the other 5% of the fund should be invested in stock but only 1% of the premium should be allocated into the property investment.