Finally, Malaysia is introducing private pension scheme for people who do not have steady savings allocated for retirement income. This scheme is called Private Retirement Scheme (PRS). Among all the segment of people who earns income, the most targeted segment of this scheme is the small business workers. Fishermen, peasants, petty traders and hawkers who do not have any retirement savings plan will benefit from such scheme. Those who are currently contributing to the KWSP too can choose to participate as contributor of this PRS as this is a voluntary based retirement scheme, unlike KWSP which is mandatory.
8 PRS providers have been chosen and collectively 24 new funds will be injected into Malaysian capital market. Basically all the funds are Unit Trust funds. Below are some of the facts about PRS funds.
Divided into 3 category i.e. Growth, Moderate and Conservative risk profile types. The growth category are for contributors below 30 years of age (Minimum age is 18 years). About 20% of funds can be invested in foreign equities. Most funds are aggressive types (about 70%) and the balance remaining (30%) will be invested in fixed or money market that is shariah compliant.
The Moderate category is for contributors from 31 to 49 years of age and about 10% of funds are allowed to be invested in foreign assets. About 50% to 60% of funds are invested in aggressive type while the balance is in fixed or money market shariah compliant funds.
The conservative category is for people who are above 50 years of age and there is no foreign equities exposure in this category. All invested funds are in local equity and money market shariah compliant type.
Contributors can choose their own funds and need not follow the above, however in the absence of asset class selection, PRS providers will follow to choose one among the 3 categories as per your age.
Contributors cannot withdraw money as and when they like, however withdrawal can be done limited to once in a year and this withdrawal is subjected to 8% tax penalty.
Once registered, contributors will be given 2 sub-accounts, namely Account 1(70%) and Account 2(30%).
Amount in account 1 can only withdrawn in full upon reaching statutory retirement age, while in account 2, amount can be withdrawn for any purpose once a year.
Contributors will be charged (different PRS providers have different charges) up to 3% upfront charges, 1.50% management fees and 0.04% administration charges per year.
From taxation perspective, the IRB is providing a maximum tax relief up to RM 3000 a year which translates to RM 780 tax savings (highest tax margin of 26%).
