With increasing life expectancy and rising living standards, many Malaysians find that their savings are inadequate to meet their retirement needs. PRS form an integral feature of the private pension industry with the objective of improving living standards for Malaysians at retirement through additional savings of funds. As long-term investment vehicles, PRS are designed to help enhance adequacy and expand coverage of retirement benefits to all segments of the population.
It complements Malaysia’s mandatory retirement savings schemes. Contributions to the PRS are voluntary.
Individuals (retail investors, self-employed and employees) or employers can participate as PRS contributors. Offering private pension benefits could be a tool for employers to attract and retain skilled talent. The PRS information set out in this publication includes a description of the framework, the key features of PRS and the regulatory safeguards. A number of frequently asked questions and answers are also set out in this publication. SPE CIM EN 3 PRS Framework
The retirement landscape in Malaysia has been given a boost with the development of a PRS framework, which is a major deliverable of the Securities Commission Malaysia (SC) under the Capital Market Masterplan 2.
Key components PRS Distributors & Consultants Private Pension Administrator (PPA) PRS Providers Schemes Trustees Schemes PRS are offered by approved PRS Providers. Each PRS will include a range of retirement funds from which individuals may choose to invest in, based on their own retirement needs, goals and risk appetite. The PPA functions as a record keeping and resource centre for data on all transactions performed by contributors.
It will facilitate transactions and promote efficient administration. The PPA will also act as a resource centre for data and research relating to the PRS industry in Malaysia. The assets of each PRS will be segregated from the PRS Provider and held by an independent Scheme Trustee under a trust. The SC regulates and supervises all intermediaries in the PRS industry, namely the PRS Providers, the PPA, the Scheme Trustees and distributors of PRS to ensure the proper functioning of the PRS industry and protects members, via prudential and investor protection requirements.
The SC is in the final stages of implementing the PRS framework – the PPA has been established and approvals have been granted to Schemes subject to the PRS Providers fulfilling certain conditions. The eight PRS Providers approved (as of 5 April 2012) 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 Bhd; and RHB Investment Management Sdn Bhd.
Prior to the sale of PRS to the public by end-2012, this is an important period for potential members to understand how PRS fits into the rest of their retirement planning and to arm themselves with information about the different PRS Providers and Schemes before contributing to PRS. 5 Key Features of PRS Designed to provide choice and flexibility Encourages members to take control of their retirement savings
• PRSaredefinedcontributionsschemeswheretheaccruedbenefitstomembersare determined by the amount contributed plus investment returns thereon.
The aim of savings in PRS is to make the members’ savings grow over the long-term. MemberswouldhavetheoptiontocontributetomorethanonefundunderaPRS or to contribute to more than one PRS, offered by different PRS Providers. Beingvoluntaryinnature,therewouldbenofixedamountsorfixedintervalsfor making contributions to PRS. A default option would also be made available for members who select their PRS Provider but do not specify a fund option. The default option would cater for different age groups.
PRS Providers would need to ensure that the relevant members are switched to the default funds in accordance with the relevant age group as shown below Growth Fund Below 40 years of age Maximum 70% equites Investment outside Malaysia is permitted Moderate Fund 40 – 50 years of age Maximum 60% equites Investment outside Malaysia is permitted Conservative Fund Above 50 years of age 80% in debentures/fixed income instruments of which 20% must be in money market instruments and a maximum of 20% in equity Investment outside Malaysia is not permitted.
Age group Parameters Members choose PRS Providers and funds according to their risk appetite and investment profile or Individuals Default option for members who select their PRS Provider but do not specify a fund option Employer may channel contributions to a particular PRS Provider, with employees choosing the type of funds offered by that Provider or Employer may channel contributions to a particular PRS Provider, and where employees do not make a fund selection, contributions can be channeled to default option of that PRS provider.
MemberswouldalsohavetheoptiontoswitchfundswithinaPRSatanytime, or change to another PRS Provider once a year subject to terms imposed by the PRS Provider. The first transfer can only be requested by a member one year after making the first contribution to any fund under the Scheme. All contributions made to PRS will be split and maintained in sub-accounts A and B as follows: PPA Account 70% Sub a/c A Can be withdrawn upon reaching retirement age 30% Sub a/c B Can be withdrawn once a year The value of sub-account A and B can increase or decrease according to the unit price. The unit price is the worth of each unit held by a member from day to day. Units are priced daily.
In order to provide efficiency and convenience for members, a single PPA is establised to keep track of their PRS contributions as well as to maintain records of all PRS related transactions made by members. It will not manage funds internally or accept contributions but will facilitate instructions from members.