Private Retirement Schemes (PRS) in Malaysia
Launched almost 10 years ago back in 2012, Private Retirement Schemes (PRS in short) has become another tool for Malaysians to save towards their retirement. However, I also realised that there are still quite a handful of people who don’t make use of this today. Some even don’t know about what PRS is all about.
I’m not here to convince anyone to either take up PRS or otherwise. I just want to share my journey and takeaways from investing in PRS since the beginning.
What is PRS?
Planning for retirement has always been something that is very challenging. The sheer amount of funds that we should have by the time we retire can be an overwhelming sum. This was shown in my article on Retirement Planning in Malaysia.
In Malaysia, we already have a pretty good public retirement savings plan – Employees’ Provident Fund (EPF / KWSP).
I know many will beg to differ, especially those who are more traditional in thinking. The purpose of this article is not to convince anyone otherwise, but at a guaranteed 2.5% dividend and a historical paid out rate of above 5% for the last 10 years, I think it serves a good investment vehicle for retirement savings. Low risk, decent returns. There’s a good coverage of this in Ringgit Plus’ blog (Link here).
PRS is set up as a separate initiative to allow Malaysians to voluntarily save more for retirement via private fund managers rather than just to rely on PRS. This is to:
- Allow an avenue for Malaysians to invest in funds that will contribute towards their retirement.
- Capture the interests of those who somehow hate keeping their retirement money with the government.
Think of it akin to investing in mutual funds, which we can’t withdraw up to age 55, but is closely regulated by the Securities Commission (aka the police of financial products).
The best reason to start a PRS account
Is the tax relief incentive!
That was what got me started with mine. If I was going to invest anyway, then getting tax relief is a pretty good bonus!
The current tax relief, which was extended up to year 2025, is allowing Malaysians to claim up to RM3,000 in personal tax relief.
How much does that translate to? Refer to the following table extracted from Private Pension Administrator (PPA)’s website.
Whilst not astronomical amount, I think we can agree that any tax relief is always welcomed! Since starting an account in 2014, I have consistently contributed RM3,000 yearly to take advantage of the tax relief.
Things to pay attention to before investing into PRS
Private Pension Administrator (PPA) is a body that was created to increase the education and awareness of PRS to the public. They are also the body to protect all their members’ interests in case of any dispute or complaints. Hence, they are the person to go to if we have any issues with PRS.
Our investment in PRS functions as a retirement fund, hence withdrawal before retirement is limited just like EPF. Withdrawal age is after 55. Only 30% of the funds invested can be withdrawn prior to retirement and this will incur a penalty of 8% on the withdrawn amount.
Another thing to note is that unlike the EPF, there is no guaranteed dividend / returns. Just like any mutual fund, it is handled by a group of fund managers and our PRS returns will be dependent on their performance.
And so, it is important to pick your provider.
PRS providers
There are 8 PRS providers who are currently approved by the Securities Commission Malaysia:
- Affin Hwang
- AmInvest
- Kenanga
- Principal (under CIMB)
- Public Mutual
- RHB
- AIA
- Manulife
Look familiar? Yes, 8/10 are common mutual fund providers in the market and 2/10 are insurance companies.
Hence, the selection of which PRS provider is quite similar to how one would pick a mutual fund provider. I have compiled the important comparison info in the table below for reference (click in to enlarge).
Whilst fees represent one decision factor, the fund performance also is an important factor. As there are many choices out there (8 providers and close to 60 different funds), you should compare the funds that tickle your fancy and is within your risk appetite (e.g. growth, conservative, shariah / conventional, etc).
BTM’s PRS
As for me, I went with Hwang’s PRS back in 2014.
7 years later, here’s a snapshot of my PRS fund performance:
PRSGOV refers to the RM500 that was contributed by the government as incentive. I think this is no longer available.
I think the returns is pretty decent at 30% – 40%.
Closing Thoughts
My purpose of starting my PRS account is to take advantage of the tax relief provided by the government. This remains true till today. I have consistently contributed RM250 monthly to my PRS (total RM3,000 per year).
It also forms as another investment asset that will build towards my retirement fund, which I will not actively manage. And it has made me decent returns so far.
That’s that.
