LATEST ABOUT PRS IN MALAYSIA

PRIVATE RETIREMENT SCHEME (PRS) PRODUCTS ROLLING OUT ANY TIME NOW

Six months ago, on April 19, I posted an article about the national Private Retirement Scheme, in which I said the scheme was taking shape fast. I also mentioned that the appointed eight PRS providers were required to submit their product plans within six months’ time for approval by the Securities Commission. True enough, now that it is October (six months from April), some of the providers are set to roll out their products any time very soon. As proactive preparatory actions to capture the market when the products are launched, they have already begun road shows to introduce the PRS to their targeted distributors and also to train them.

My research for updated information via sources in the industry, including a few providers, enables me to share the following affirmed key standard features and mechanisms of the products for your easy reference:-

*Open to both Malaysians and foreigners (with valid documents) above age 18.

* Tax relief on contribution of up to RM3,000 per annum, available next 10 years from 2012.

* Employers sponsoring contributions for employees are eligible to claim tax deduction up to 19% of their employees’ overall annual remuneration.

* Three (3) core funds, namely Growth Fund (maximum 70% equities and balance in fixed income assets), Moderate Fund (maximum 60% equities and the balance in fixed income) and Conservative Fund (80% in fixed income). Apart from the core funds, a provider may have non-core funds parked under the core funds, e.g. an Islamic Moderate Fund which is being made available by one provider.

* Participants have the option to select the fund/s of their choice.

* For participants who do not elect any particular fund, the default option automatically will apply, which allows the provider to auto-pick the core fund on behalf of the participant according to the age group as follows: Growth Fund (below age 40), Moderate Fund (40 – 50 years old), Conservative Fund (above 50 years old). When the participant moves to the next age group, the provider will redeem units from the existing core fund to purchase units in the next core fund identified for the newly attained age.

* Participants can request to switch funds along the way, between core funds and non-core funds. A provider is allowed to either charge a low or no switching fee. It can also stipulate the limit in number of switch times per year. 

* A participant is allowed to sign up with more than one provider.

* A sponsoring employer may choose the provider while selection of funds lies with employees.

* Employers sponsoring the contributions may opt for a vesting schedule formula to promote employee loyalty. For example, the vesting ratio may range from 0 to 100% from 1^st to 10^th year of service. If an employee leaves early, say in the 5^th year, only 50% of the invested savings may be vested to him.

* Some providers may offer regular contribution scheme and/or single lump sum contribution. Additional or top-up contributions are allowed.

* Unlike unit trust investments, withdrawal of savings from Employees Provident Fund (EPF) account to fund the contributions toward PRS is not allowed.

* Contributions can be on monthly mode and remitted via bank or credit-card auto-debit arrangements.

* Contributions go into two sub-accounts: Sub-account A constitutes 70% of all contributions and the balance in Sub-account B. Sub-account A cannot be withdrawn/redeemed before retirement.

* Rules For Withdrawal/Redemption: (a) Pre-retirement withdrawal is allowed from Sub-account B. Participant is allowed to withdraw the whole amount from this sub-account or partial. Redemption  is subjected to 8% tax, deducted and collected by the provider upfront on behalf of the tax authority. (b) Retirement redemption can be done either in lump sum or periodically. Participant may also opt to retain the scheme. No tax is imposed on retirement redemption. (c) Withdrawal because of permanent departure from Malaysia through emigration is allowed. For foreigners, it can be done upon producing evidence of documentation cancellation such as work permit or permanent residency.

* Transferability/portability of savings in any amount from one provider to another is allowed, limited to once per year. The first transfer can only be done one year after the initial contribution. A provider can only charge the actual or reasonable expenses incurred for the transfer.

Special Note: I understand that as a form of consumer protection, participating members of a PRS provider may invoke a meeting under Regulation 20 of the PRS regulation upon fulfilling the following condition:

·         *Not less than 50 members or one-tenth of all members of the PRS or the fund as the case may be, direct the PRS provider to do so in writing.

·         *Purpose of the meeting is to consider the most recent financial statement, or to give the scheme trustee such directions as the meeting deems proper, or to consider any other matter in relation to the PRS or the fund or the deed.

Happy Retirees

CAVEAT: The contents of this sharing are based on my personal research and sources of information. Therefore, you should also relate to other relevant sources in order to verify the validity of the contents. Thank you.