NOTE: THIS ARTICLE IS AIMED TO PURVEY THE PERTINENT FACTS REGARDING THE NATIONAL SCHEME SO THAT READERS CAN UNDERSTAND THE FUNDAMENTAL FRAMEWORK AND ALSO THE PROGRESS MADE IN IMPLEMENTATION SO FAR. THE APPROACH IS MORE INFORMATIVE-ORIENTED INSTEAD OF A CRITIQUE COMMENTARY.
Onset of the national Private Retirement Scheme (PRS) seems to be gaining firm ground as the result of prompt attention given by the Malaysian authorities. Barring unforeseen obstacles, I reckon the relevant products should roll out to market in the first quarter of 2013.
In October last year, Amendment to the Capital Market Services Act (CMSA) that set the regulatory framework for PRS came into force. Two months later (December), Securities Commission (SC) announced the “Eligibility Requirements for Private Retirement Scheme Providers” and set the deadline at Feb. 15, 2012 for interested players to submit their applications, together with preliminary outline of their proposals, for SC’s consideration. Promptly, on April 5 recently, SC issued a press statement confirming the selection of eight successful applicants to be PRS providers.
The appointed providers are:
1. * AmInvest Management Sdn Bhd. 
2. * AIA Bhd.
3. * CIMB-Principal Asset Management Bhd.
4. *Hwang Investment Management Bhd.
5. * ING Funds Bhd.
6. * Manulife Unit Trust Bhd.
7. * Public Mutual Bhd.
8. *RHB Investment Management Sdn. Bhd.
The Frequently Asked Questions (FAQ) list accompanying the press statement revealed that the appointed providers are given six months to comply all requirements, including obtaining SC’s approval for their schemes and funds. This means they must quickly finalise their proposed product specifications in order to be in time for SC to grant approval. And if the same speed of follow-through by SC is maintained, the entire works should be on SC’s review table by October this year the latest. Let’s say it might take another two months for SC to bind up all necessary aspects, I would then reckon that the overall scheme should be ready for launch in early 2013.
Obviously, looking at the list of selected providers and the current business they are in, the products will be some form of investment funds. Only one, i.e. AIA Bhd, is an insurance company as it stands now, but I understand from informed sources that the insurer also applied for licence to set up a fund management subsidiary at the same time it submitted its application to be a PRS provider.
I know many other corporations, including established ones, had applied but were not successful. The statement by SC said: “The PRS providers were selected on basis of their expertise in investment and/or pension fund management, experience in global pensions management, financial strength, governance structure and proposed business models.”
Now, let’s look at some more affirmed facts for you to form a better picture of the scheme.
· * A PRS provider must be an entity incorporated in Malaysia and a holder of a Capital Markets Services Licence carrying the business of fund management.
· * A common Private Pension Administrator will be appointed. The administrator, being a body, will be responsible for instituting an efficient administration system for the PRS industry, looking after public interest with regard to the industry, general education etc. I believe the administrator is also entrusted to manage statistics pertaining to transactions and the business of the overall scheme.
· * Each provider will have to appoint a trust company as their Scheme Trustee.
· * Fund management fee and scheme trustee fee will be imposed to participants via charging to the funds. The PRS guideline also allows fees to the PRS Administrator to be deduced from members’ pension accounts.
· * Fund assets allowed to be invested by the providers are equities, debentures, warrants, cash deposits and markets, structured products, securities lending and real estate. Investment in real estate will be limited to 15% of the Net Asset Value (NAV) of a fund.
· * The FAQ states that PRS is intended to be a voluntary long term investment scheme which complements the compulsory contributions to the Employees Provident Fund (EPF).
· * There will be a range of retirement funds for participants to choose according to their investment needs, goals and risk appetite.
· * A range of seven funds can be offered under a scheme by a PRS provider. A PRS provider which avails both conventional and shariah-compliant fund options may offer up to 10 funds under a scheme.
· * Three categories of core funds must be available – growth fund, moderate fund and conservative fund that cater for varying risk exposure profiles and preferences of participants.
· * Tax relief up to RM3,000 per annum (separate from the RM6,000 relief for EPF contributions and life insurance premiums) will be allowed for participants.
· * Apart from individual participants, employer-sponsored retirement schemes will be available. Tax deduction up to 19% of employee’s remuneration will be allowed as encouragement to employers.
· * Withdrawal of contributions from PRS prior to maturity period or attaining mandatory retirement age is taxable. (Source: www.tre.com.my; www.mia.org.my )
· * A “cooling off period” must be stipulated, which allows participants to rescind their applications and ask for refund of contributions. The period must not be less than six days.
· * A PRS provider must allow accrued benefits of any amount from any fund under the scheme to be transferred once per calendar year to another private retirement scheme of another PRS provider. The first transfer can only be requested one year after the first contribution.
I can think of quite a few other pertinent aspects which have not been covered by SC in its official announcement materials, i.e. press statement, the guidelines, FAQ. These are:
QUESTION: Will contributions be in the form of a single capital outlay, or regular periodic remittances, or either one?
My feel: If the PRS is really intended to be a long term investment scheme which complements the compulsory contributions to the EPF, and if the Government really wants to leverage on the tax relief granted per annum to individual participants and the tax deduction for employer-sponsored schemes as “incentives”, then it makes sense to favour regular contributions. I will not rule out there may be schemes catering for initial single contribution but with the option to top up by participants along the way whenever needed, similar to such facilitation commonly practised by unit trust or mutual fund companies. Let’s wait to see what the appointed providers will churn out for the market.
QUESTION: Will deductions from a participant’s EPF account to fund contributions be allowed?
I tried to search with various sources, including via the electronic net but could not acquire any affirmation. However, I am inclined to feel that the providers might want to incorporate this facilitation in their product design and proposal for SC’s approval. It is now allowed for investments in unit trusts or mutual funds, so why not for PRS too? Again, let’s wait to see what will turn out after six months from now.
QUESTION: Are expatriates, permanent residents and non-Malaysians in Malaysia allowed to participate?
Nothing has been mentioned about this so far.
QUESTION: Upon maturity, will there be lump sum payout, or regular pension payouts, or either option available?
I cannot find any mention about this. The pertinent question is, can fund management houses successfully institute mechanisms to cater for regular pension payouts? It would be interesting to see what comes out from the providers in this respect when their schemes are ready.
QUESTION: What distribution channels can be deployed as intermediaries by PRS providers to promote the schemes? What are the compulsory prerequisites to qualify as intermediaries?
Nothing has been mentioned about this so far. But bear in mind that the appointed providers already have a large pool of “agents” to sell their existing unit trusts or mutual funds. Can they also be deployed to become intermediaries for PRS schemes? Let’s wait and see.
(Story of a happy retiree…….In Humour Vein):
Sam, a retiree, 65 years old, loved doing only 1 thing: DRINK BEER. However, his wife Rose was very much concerned about his health in addition to his squandering away his retirement savings on beer. One day, Sam came back home in a “high” condition after drinking in a bar. During dinner, Rose kept on scolding him incessantly. Heated argument ensued. Being agitated, Sam pushed away his food angrily, marched to the fridge and grabbed a dozen cans of beer, and then headed to the patio of the house to gulp down his favourite drink. A short while later, Rose realised she was too confrontational. She went to the patio and sat beside him. Both did not speak to each other for 15 minutes. Sam continued drinking, and it seemed silence was golden to them for the moment.
Then, suddenly, Sam was heard mumbling out in slurred speech. “I love you very much. I can’t do without you. You are everything to me.”
Rose thought Sam was trying to be sarcastic. She glared at him and protested: “You are talking or the beer is talking!”
Sam raised his can in his hand and retorted aloud: “I am talking…….to my beloved beer, and not to you!!”
Moral: Never argue with a retiree who is a beer drinker. He will snap back at you and hurt you hard. Let him be happy as a retiree with his beer.
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