PLANNING to supplement your retirement nest egg by contributing to the private retirement scheme (PRS)? This long-term investment scheme, regulated by the Securities Commission Malaysia, is aimed at helping individuals accumulate savings for retirement and complement their mandatory contributions made to the Employees Provident Fund (EPF). All individuals, employees and freelancers who invest in a PRS product will enjoy tax relief of up to RM3,000 a year, as announced in Budget 2012.
Basic PRS products similar to "plain-vanilla" unit trust funds designed for growth, moderate or aggressive risk appetites should be available in the market this October. The eight approved PRS providers have yet to reveal details but the initial products appear to best suit employees working for profitable small and medium enterprises and large companies.
The PRS shares the same features as the 401(k) Defined Contribution Plan in the US. Both are voluntary and enable employees to lower their taxable income. Says Robert Boyda, head of global asset allocation and senior portfolio manager at Manulife Asset Management in the US, the employer contributes between 5% and 6% of the contributing employee's salary into this fund, a benefit aimed at retaining employees.
Jason Chong, CEO of Manulife Asset Management (M) Sdn Bhd, says this approach can be adopted by employers here. "For example, I [the employer] will give an additional 3% [contribution to the PRS] but if you leave within two years, you will not receive anything." To encourage the introduction of PRS products to their staff, employers can claim a tax deduction of up to 19% of their employees' remuneration, which is higher than the current statutory contribution of up to 13% to the EPF.
This approach puts the selection of the PRS provider with the employer. Selection of the actual PRS product is, however, with the individual, based on his risk profile and investment duration. Currently, there is no limit on the number of PRS providers that a company can work with. But most companies are not expected to work with all eight approved providers since this imposes additional administrative processes on their human resource department (like EPF contributions, PRS contributions would affect the companies' payroll system). Too wide a selection of similar PRS funds will also confuse employees. "In the US, companies offer seven to eight funds in their 401(k) scheme. They would pick a provider based on its financial strength and ease of administration. Less emphasis is placed on returns and fees," says Boyda.
Says Chong, a PRS provider will offer three basic-vanilla funds and possibly more innovative funds that invest outside the country. Manulife Unit Trusts Bhd, which is among the eight approved PRS providers, is currently looking at the systems and approaches adopted by their counterparts around the world and will adopt processes that fit the local market, says its CEO Edward Ooi. The fees have yet to be finalised.
source: The edge Malaysia 20/7/2012