Sunday, July 22, 2012

TakeAways from Private Retirement Scheme (PRS)

This post is specifically for Malaysian - our PM launched a new voluntary private retirement scheme (i.e. PRS) for all Malaysian! You can check the announcement here. Well, I think this  a good news. So, let's see what are my key takeaways from this announcement?

Key Takeaways

  • You may ask what is the difference as compared to EPF? The obvious one, EPF is mandatory and PRS is voluntary.
  • Tax relief is up to RM 3K as compared to EPF is RM 6K. Well, it is additional. What it means is if your tax bracket is 26%, you will able to save up to RM780
  • Contribution frequency is flexible where else for EPF is monthly.  I think this is very similar to mutual fund investment where you can also setup a monthly investment if you want to.  
  • You can only apply this PRS through approved PRS providers. They are AmInvestment Management Sdn Bhd, American International Assurance Bhd, CIMB-Principal Asset Management Bhd, Hwang INvestment Management Bhd, ING Funds Bhd, Manulife Unit Trust Bhd, Public Mutual Fund and RHB Investment Management Sdn Bhd.
  • You can choose what funds to invest but I guess that is still based on the term and conditions of the PRS providers above. You should check with your agents. For EPF, you only have partial freedom. Remember you can opt for withdraw the money from EPF for investing in mutual funds?
  • Withdrawal is similar to EPF, the entire fund in your PRS can be withdrawn when you reach your retirement age (55 years old - used to be 60), you die or you migrate to another country. For partial withdrawal for per-retirement, there will be 8% tax penalty. This is different from EPF where withdrawals can be made without penalty for specific purpose (e.g. pay for housing loan and education). Anyway, for detail you should check with your PRS provider to confirm. 

I believe the details on how to apply this PRS will be communicated by the PRS providers soon. For example, if you're using Public Mutual and I will expecting your agent will be contacting you about this scheme. If not, you can approach them assuming you're interested to apply.

I think I will go for this as it can help me on the tax relief. Will you? One risk that you must understand is the fund that you invest in may be losing money. To minimize such risk, I think the PRS providers will mostly offer those low risk funds rather than aggressive funds. So overall, I think this is safe to invest.


Kris said...

So if I already have EPF, then i can still subscribe to this. Mostly helpful to lower down income tax bracket then as what you mentioned. :)

ChampDog said...

Yes, is an additional one. :)

zool said...

Never heard about this scheme..

ChampDog said...

Yes, something new. :)

LCF on Personal Finance said...

I think if we remove the tax relief from the equation, it might not be too appealing to those who want flexibility investing their own money. For the less disciplined in money management, this could be good.

ChampDog said...

Yes, tax relief is the key thing especially for people like me that no way can run away from tax. :)

LCF on Personal Finance said...

How about donation Champ? 7% of your income max - you wrote about that recently too :)

ChampDog said...

Yes, donation too but I don't make use of that ever year. I think I only claim that once. :) I do not donate every year.

Mt. said...

1. this means govt has influence over most fund managers to keep stock market afloat.

2. as long as there is no restriction on exit strategy ie. can only cash out after age 60 etc. then its an ok scheme.

3. when your job income reaches 26% or there about, you should really understand sole prop business accounting to optimize your tax.

good luck.

ChampDog said...

8% tax penalty for withdrawal.

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