Many Malaysians are prone to think their children as their retirement fund. They do not see the importance of saving money for their retirement and are confident that they will have enough before “Moving On” to the other side.
Some children could afford it while some can’t. This also interrelates to how well parents have contributed into their child’s education. Statistically, children from poor background, could not afford to care for their parents as they lack the qualifications and skills to obtain good jobs and good income.
85% of working age people do not priorities savings for retirement as they could not yet see the vision of their future self.
An old man, thought he might die when he was diagnosed with heart attack at the age of 60, but till today he is still alive at the age of 74 years old. The future is unknown and that is why it is important to prepare for it.
There are who thought that, after retirement, they will have less obligations e.g. no more need to pay for car loan, house loan and no need for emergency fund for medication as they can opt for the government facilities. However, they did not realize the fact that “being alive, you have to pay maintenance fee”. Things such as food expenses, water bills, electrical bills, house maintenance, and car maintenance. And as for medical, not all medication is covered by the government.
It is now a governmental level concern for Malaysia. Therefore, in recent years, the government have been encouraging the citizens to have enough savings for their retirement funds and they’ve come out with the Private Retirement Scheme to help future retirees to retire with enough money.
What is Private Retirement Scheme? Private Retirement Schemes (PRS) is a voluntary long-term savings and investment scheme designed to help you save more for your retirement. PRS seek to enhance choices available for all Malaysians whether employed or self-employed to supplement their retirement savings under a well-structured and regulated environment. The PRS is an integral feature of the private pension industry as part of the Economic Transformation Programme under Entry Point Project 6 (EPP 6), with the objective of improving living standards for Malaysians at retirement through additional savings. With the regulatory framework developed by the Securities Commission Malaysia, PRS forms the 3rd pillar of Malaysia’s multi pillar pension framework.
PRS is design for retirement where you can only use this money when you are at your retirement age, which is 55 years old. PRS is similar to Employee Provident Fund (EPF) which PRS consist of Account A and B and both are 70% and 30% similar as EPF. PRS is an affordable saving where you can use 10% of your monthly salary and do monthly deductions as it is.
As a contributor, Figure 1 shows what the options you have for PRS contribution are. If you selected default option, the investment returns will follow as per age and the contributor as per below table; –
|Core Funds||Age||Asset Allocation|
|Growth Fund||Below 40 Years||Maximum 70% in equity; 30% in debentures/fixed income and money market instruments|
|Moderate Fund||40-50 Years||Maximum of 60% in equity; 40% in debentures/fixed income and money market instruments|
|Conservative Fund||50 Years and above||80% in debentures/fixed income instruments of which a minimum of 20% must be in money market instruments and a maximum of 20% in equity|
The best about this PRS is that you can get tax relief of up to RM3, 000 per year while Malaysians aged 20-30 will get a one-time RM1, 000 youth incentive into their PRS account. These are with terms and condition applies. For tax relief, it is till 2021 as per agreed with the government in their budget. You still have 3 years to go to get at least RM9, 000! That is considering big amount for certain people. How about the Youth Incentives? Sadly, to say, it is up to Dec 2018 only so hurry up! You would never enjoy this anymore after these years!
How about the risk? Default option funds offer an automatic glide path in managing your funds towards retirement. The auto glide path is a unique feature of the default option funds where the PRS fund manager automatically switches your funds from a higher risk growth asset allocation to a more conservative lower risk asset allocation as capital preservation should take priority as you approach your retirement. This auto glide path makes it easy for you to manage your risk exposures over time based on a defined age grouping within each default option funds.