Private Retirement Scheme, PRS, works very much like our EPF and is an investment scheme that is regulated by the Securities Commission Malaysia. If you’re between the ages of 20-30, there’s a PRS Youth Incentive that you should take advantage of quick!
What is PRS?
PRS, a Private Retirement Scheme, is a voluntary investment scheme. It is for the long-term and, as its name suggests, retirement at an older age. Think EPF (Employees Provident Fund) – but it does not replace EPF! It is an investment scheme to help bolster your finances when you retire, complementing your mandatory EPF contributions.
Like EPF, where the money you contribute is invested and returned in interests, each of the PRS has their own retirement funds that you can choose to invest in, based on what your retirement goals and needs are. Your investment risk appetite (how much you’re willing to risk) is also considered.
Why should I invest in PRS?
Simply earning a monthly salary and saving while relying on your EPF contributions is not enough today, what more can we speak about the future? A private retirement scheme can help you to boost your retirement funds in addition to your savings and your EPF contributions.
As the PRS is voluntary, it can be very affordable to commit to. You can choose to contribute any amount monthly (minimum of RM50), or not contribute at all after your initial contribution. Not to mention, you will be eligible for tax relief of up to RM3,000 if you’re contributing to PRS.
Why should I be quick to invest if I’m between the ages of 20 and 30? The PRS Youth Incentive!
The PRS Youth Incentive was launched in October 2013, where a one-off RM500 would be given to those who contributed a minimum of RM1,000 into the PRS. The latest incentive (under the Budget 2017) however, has a higher incentive amount of RM1,000. This means that when you contribute a minimum of RM1,000, you’ll receive an additional (one-time only) RM1,000 into your PRS account, meaning you cannot withdraw it as cash until your retirement.
You must fulfil the following requirements to be eligible for the PRS Youth Incentive:
- Age between 20-30 years within the incentive period (2017-2018)
- Contributing a gross amount of RM1,000 in a single PRS fund of a Provider
- Applicable to new or existing PRS contributors
Sounds good, doesn’t it? This incentive is only valid until 31st December 2018 – that’s why you need to act quick!
Who are the PRS providers?
The PRS providers are made up of fund and asset management companies and banks, such as Manulife and CIMB. The money you contribute to the PRS will then be used by these providers to invest on your behalf. The returns of the investment will then be returned to you via interests.
You can find the complete list of providers here: PRS Providers
How do I pick a PRS provider or fund?
This here is the tricky part. The general rule is that the provider or fund you choose should match your investment “personality”, meaning your investment goals, needs, and risk profile. It also helps to study the providers more in-depth! Read more into the different funds they have, what industries are they investing in, and even the fund’s performance history.
PRS gives you the option to either go with a “default” option for each of the providers or you can self-select the funds you wish to invest in. The “default” option will automatically help you select the appropriate funds based on your age grouping (to determine risk appetite). Self-selection, on the other hand, allows you to choose a fund in each of the providers – this is where you would need to do a lot more in-depth study of each fund to get a better understanding.
You will be given an option to switch your funds, which is something you may want to do occasionally if that specific funds outlook isn’t looking too good, or if you want to change your retirement goals and risk appetite. Fund switching generally will incur a fee, depending on the provider.
You can also get in touch with a PRS agent who can help explain and guide you through the selection of providers and funds. Keep in mind that while it feels more reassuring, the agent will charge you fees and they may risk being partial to certain providers. Ultimately, the choice is entirely yours to make. You can get in contact with an agent by contacting any of the providers.
Are there any downsides to PRS?
As with all types of investments, be it stocks or unit trusts, your returns are not guaranteed. By investing your money, you are taking a risk for the financial security of your future. This means that the money you contribute may increase, remain stagnant, or worse, decrease.
To make this risk more manageable, it is important that you study and understand the different providers, but ultimately, nobody can predict the future of these investments. You can read more at the PRS FAQ page.
Another item to keep in mind is that PRS contributions are also not protected by PIDM (Perbadanan Insurans Deposit Malaysia), the government agency that protects your money in banking institutions.
When will I get to withdraw?
Like EPF, the money invested into PRS is divided into two sub-accounts, sub-account A and sub-account B – the contributions are divided into 70/30 ratio respectively.
The ideal age for withdrawing of the PRS investment would be the day you reach the retirement age (55 years and above). When you reach that age, you can either make a partial or full withdrawal from both sub-accounts, like your EPF. You should also have a nominee for the investment because if death occurs, the money will be paid out in full to the nominee.
If you would like to withdraw before your retirement age (55 years and below), however, you can only make full or partial withdrawals from sub-account B. Doing so will subject the withdrawn amount to an 8% tax penalty.
Leaving the country permanently (surrendering work-permit or citizenship) will count as a permanent departure and entitles you to a full withdrawal (both sub-accounts) with no tax penalty.
If you’re between 20 to 30 years old and would like to start preparing for your future, then you better hurry up and get it done before 31 December 2018 to take advantage of that PRS Youth Incentive!