The effect of inflation, interest rate and dividend rate on private pension benefits in Malaysia

The inflation, interest rate and dividend rate uncertainties have caused pension system in Malaysia, particularly the Employee Provident Fund (EPF) scheme, facing major challenges to remain financially sustainable and capable of providing sufficient protection to pensioners. Thus, this study employed these variables to analyze if there is a significant relationship between inflation, interest rate and dividend rate on private pension benefits in Malaysia across the period from 1999 until 2019 by using time series regression. Inflation was found to have an inverse relationship with the pension benefits while the interest rate and dividend rate are positively related to the pension benefits. Inflation and interest rate are found to have a statistically significant impact on pension benefits. However, the result shows that dividend rate does not have significant impact on pension benefits. This study also used an Autoregressive Distributed Lag (ARDL) model to investigate the short-run and long-run relationship between pension benefits and independent variables namely inflation rate, interest rate and dividend rate as control variable. The findings revealed that there is a relationship between inflation and pension benefits in short-run but not in the long-run. In contrast, interest rate and dividend have both short-run and long-run effect on pension benefits. Thus, the findings could help retirees in carefully planning their retirement fund to sustain their living standard which include necessities such as housing, clothing, utilities and health care cost. Moreover, this study also will be benefits society to improve their quality of life, health, well-being and to prevent poverty among elderly society in Malaysia.