This post is for people who are looking to get their retirement sorted out. I’m going to talk about what is PRS (Private Retirement Scheme), how it works, and why you should be using one.
This will give you some information so that you can make an informed decision on whether or not this type of retirement investment is right for you.
This post has more than 1,000 words. If you know which area or topic to zoom, then make use of the table of content below. Otherwise, sit back, relax, and enjoy the insights.
Table of Contents
What is Private Retirement Scheme?
Private Retirement Scheme ( PRS ) is a retirement savings scheme that helps you to save more for retirement. It is a voluntary long-term investment to complement your EPF savings.
The main purpose of PRS is to address the lack of retirement savings among Malaysians.
Is investment in PRS safe?
PRS is not mandatory and guaranteed by the Government of Malaysia like EPF (Employees Provident Fund). Plus, it does not cover under PIDM.
Like other investments, PRS is also exposed to risk and subject to market volatility. Hence, your capital or returns from this investment are not guaranteed.
However, The guidelines such as ‘The Capital Market and Service Act 2007’ and ‘Guideline on Unit Trust Funds’ provide regulatory guidance to protect the investors from theft or fraud. Hence, investor’s money remain safe.
Plus, PRS funds are managed by professional teams. The risk is reduced with the diversification of companies invested, instead of betting on a single stock.
How does it works?
Similar to EPF, the investment in PRS is split to a 70:30 ratio into two sub-accounts; Sub Account A and Sub Account B.
Sub Account A: Represents 70% of investment in PRS. It is locked and cannot be withdrawn until age 55.
Sub Account B: Represent 30% of investment in PRS. It can be withdrawn with the following condition:
§ After 1st year of initial investment
§ Once a year
§ 8% tax penalty on the amount withdrawn
A quick illustration as below;
Is PRS the same as EPF?
PRS is not really the same as EPF.
· PRS is voluntary. EPF is mandatory.
· PRS is run by financial companies. EPF is run by Government’s own institution.
· PRS returns are not guaranteed. EPF guarantees a minimum return of 2.5% every year.
You have an EPF. Do you have to invest in PRS?
Many people think EPF savings is enough for retirement.
However, a study showed that 70% of ex-EPF members exhausted their EPF savings within 10 years.
As a consultant, I have met many people aged 50s and retirees. One of the questions I sometimes ask is how much is their EPF savings vs their last withdrawn salary.
From this exercise, I would be able to advise them on how much they can spend monthly and how to sustain their wealth during retirement. And, from that information as well, below is my finding;
If a person has only EPF savings when he retires, the dividend gain from EPF (in terms of monthly) is about 25 – 30% of his monthly salary.
Based on the above, I strongly believe every person needs to complement EPF money with their own personal savings. And, one way to build up retirement savings is by investing in PRS.
Who is eligible to invest?
· 18 years old
· All Malaysian & foreign workers (with work permit)
· Everyone including self-employed, individuals, employees, retail investors
What are the benefits?
· You can claim tax relief of up to RM 3,000.
Depending on your tax bracket, it translates to savings of up to RM 720
· Returns from PRS is not taxable
Which fund companies is offering PRS?
As of the year 2021, there are 8 Companies that offer PRS investment. The list is as below;
· Principal Asset Management
· Affin Hwang Asset Management
· AIA Pension and Asset Management
· Amfunds Management Bhd
· Kenanga Investors Bhd
· Manulife Asset Management
· Public Mutual Bhd
RHB Asset Management
How can you apply?
There are 2 ways to register and invest in PRS;
1. You can sign up online through the PPA website.
Link: https://prsenrolment.ppa.my or,
2. You can contact any consultant from the above PRS providers and engage their services.
Can you withdraw money from your PRS account?
You can only withdraw money from your PRS account once you reached age 55 without any penalties.
If you want to withdraw it before age 55, you can do it from Sub Account B (30% of PRS savings) with a tax penalty of 8%. Besides that, you can only withdraw it once a year.
Are there any fees when investing?
Each PRS Companies have a variety of different fees and charges, which may seem confusing for some people.
For more information about PRS fees, please check out at Private Pension Administration website.
What funds can you invest in?
There are about 58 funds provided by the 8 Companies. You can invest in one or more funds or companies of your choice.
If you are not familiar with the investment, then you can opt for the default Core which will determine your funds automatically based on your age group.
For those who understand basic investing and able to manage own investment, you can invest in any of the Non-Core funds. The returns might be higher, but it’s exposed to market risk.
What is funds’ performance?
a. From the past 5 years, in general, Non-Core funds have performed the best with average annual returns of 8.24%,
b. The Core funds performance are range at annual returns of 4.07% to 7.93% (depending the type of Core group)
Source: PPA. Note that past performance is not an indicator of future performance
Most of the funds have had positive returns in the past 5 years. However, you need to choose the right fund in order to get a healthy return compared to EPF. Should you choose the wrong funds, you may risk losing your money or growing it at a slower rate.
If you want to invest in PRS, what is the best way to do it?
My recommendation is 2 ways;
a. If you invest a lump sum amount such as RM 3,000. Then, diversify it to Core Growth (or Core Moderate) and Non-Core equity (my favorite is Principal (Islamic) PRS Plus Asia Pacific Ex Japan Equity) funds.
Diversification will minimize the risk of losing and maximize the annual returns.
b. Save via monthly contribution.
I like monthly savings. It’s less risky, less painful and you can build wealth across time.
If you want to invest in PRS every month, then I suggest you choose a Non-Core Principal (Islamic) PRS Plus Asia Pacific Ex Japan Equity fund.
The good thing about a monthly contribution is the ‘dollar cost averaging concept. If the market drop, you will purchase the unit at a lower fund’s price. If the market increases, you benefit from the capital gain.
*Note: As I am a consultant registered with Principal, my preference is towards Principal’s product.
With starting a PRS and retirement plan , you can take control of your future financial health and retire comfortably so that all those other goals will become a reality.
Don’t wait and start saving for retirement.
Investing involves substantial risk as well as reward; readers are encouraged to do their own research before arriving at any conclusions based solely on materials provided or republished here. Read full disclaimer.