Have you ever heard of private retirement scheme (PRS)? No? But if you are working, the chances are that you already know Employees’ Provident Fund (EPF) or in Malay, “Kumpulan Wang Simpanan Pekerja” (KWSP). Or if you are a government servant, you may know the Retirement Fund (Incorporated) aka “Kumpulan Wang Persaraan (Diperbadankan)” (KWAP). Both are pension plans. In common with these plans, PRS, as the name suggests, function to prepare for our retirement life.
According to Investopedia,
Okay, there is no definition of PRS on this website. The closest term to PRS is pension plan but it is not exactly like PRS. This represents the first time that I could not find a definition in Investopedia. Since PRS is a very Malaysian thing, I shall go to the website of its central administrator, Private Pension Administrator Malaysia (PPA).
The following excerpt is taken from its website:
“What is PRS?
Private Retirement Schemes (PRS) is a voluntary long-term savings and investment scheme designed to help you save more for your retirement. PRS seek to enhance choices available for all Malaysians whether employed or self-employed to supplement their retirement savings under a well-structured and regulated environment. Each PRS offers a choice of retirement funds from which individuals may choose to invest in based on their own retirement needs, goals and risk appetite. The fund options under PRS are intended to enhance long-term returns for members within a regulated framework.
PRS Objective
A high income nation must have a sound and sustainable social security framework to ensure adequate retirement savings. The PRS is an integral feature of the private pension industry as part of the Economic Transformation Programme under Entry Point Project 6 (EPP 6), with the objective of improving living standards for Malaysians at retirement through additional savings. With the regulatory framework developed by the Securities Commission Malaysia, PRS forms the 3rd pillar of Malaysia’s multi pillar pension framework.
(Link)”
Fund companies offering PRS
In short, it is a voluntary investment scheme for retirement. It is like a mutual fund. There are eight fund companies which offer this type of funds (Link).
1 | Affin Hwang Asset Management Berhad |
2 | AIA Pension and Asset Management Sdn. Bhd. |
3 | AmFunds Management Berhad |
4 | CIMB-Principal Asset Management Berhad |
5 | Kenanga Investors Berhad |
6 | Manulife Asset Management Services Berhad |
7 | Public Mutual Berhad |
8 | RHB Asset Management Sdn. Bhd. |
Every company offers a few funds with different characteristics. Generally, the funds can be categorized into growth, moderate or conservative. You will have to choose the fund that you are interested in to invest.
Benefits
What are the benefits of PRS? Isn’t EPF or KWAP enough for our retirement? Why should you save in another account?
First, the money you put in a PRS fund can be claimed as a tax relief. A maximum of RM 3000 is allowable if you do not have other annuity plan. This tax relief is currently applicable till 2021. Furthermore, your full amount of contribution (inclusive of fees and sales charge) is claimable.
The other benefit applies if you are 20 – 30 years old. But if you are over 30 already, too bad then! With a minimum contribution of RM 1000, the government will inject into your fund a matching RM 1000. This offer is valid till 31 December 2018. Grab it before it is gone!
Sounds great right? But one coin always has two sides. Now, we shall go into the disadvantages of PRS.
Disadvantages
Like all mutual funds, there are charges and fees payable to the managers and providers. Other than the sales charge, the table below details the other fees:
Account Opening Fees | RM 10 one off |
Annual Fees | RM 8 per year per provider (not payable in the year the account was opened and in the year where there is no contribution) |
Admin Fees | 0.04% per annum of the funds’ NAV (charged to the funds) |
Transfer Fee | RM 25 per transaction (currently waived till further notice) |
Pre-Retirement Withdrawal Fee | RM 25 per transaction (currently waived till further notice) |
(Link)
What really concern us are the account opening fees, annual fees, transfer fee and withdrawal fee. These fees are to be borne by us. Account opening fee is a one-off payment, thus you can consider it as a sunk cost. Annual fee, though recurring, is not considered too high to eat away the profit. The last two fees, though currently waived, may be enforced in the near future. But these fees will only be incurred when the said transactions are required.
Another drawback is that the fund cannot be easily withdrawn before you are 55 years old. This is its significant difference with a mutual fund. Although pre-retirement withdrawal is allowed, you can only withdraw the fund in part or in full from sub-account B once a year after one year of subscription. For your information, the money we put into the fund are divided into sub-account A (70%) and sub-account B (30%). Sub-account A is only accessible upon retirement age of 55. Besides that, though pre-retirement withdrawal fee is currently waived, you are required to pay an 8% tax penalty when you withdraw prematurely.
Final thought
So do the benefits outweigh the cons for you or vice versa? For me, I use PRS primarily for tax relief purpose. If you are between 20 – 30 years old, I recommend you to invest RM 1000 to get the government incentive. If you are over 30 and has low tax liability, you are better off putting the money somewhere else, either in mutual funds or stock market. But if you are the kind of person who cannot keep your money, PRS might be a good option for you as at least 70% of your fund will be available after retirement.
If you do want to invest in PRS, I recommend you to use Fundsupermart (Link) to purchase the fund. This is due to the fact that the sales charge on this platform is waived (0%). However, not every provider is included in this platform and the notable exclusion is Public Mutual Berhad. Nevertheless, I believe that the PRS funds available on this platform are varied enough to cater to everybody.
There are procedures and documents to be completed before you are allowed to invest in a PRS fund. If you are ready to commit, just follow the steps outlined by the fund provider.
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