Beyond EPF: Malaysia's Private Retirement Scheme (PRS)

Retirement planning might feel like a distant shore, but the journey starts with the steps you take today. In Malaysia, the Employees Provident Fund (EPF) often takes centre stage in these discussions, and rightly so when personal finances are on the line.

It’s a significant part of most working Malaysians’ financial future and their financial management. However, putting all your eggs in one basket might not be the wisest approach. That’s where the Private Retirement Scheme (PRS) comes into the picture, offering another avenue to build a comfortable nest egg for your golden years.

The Private Retirement Scheme (PRS) presents an opportunity to take more control over your retirement savings, offering choices that can align with your individual circumstances and financial goals.

What is PRS?

The PRS is essentially a voluntary long-term savings and investment scheme designed to help Malaysians save more for retirement. 

It’s one of the few private asset managers regulated by the Securities Commission Malaysia and managed by appointed PRS providers. It’s a personal investment pot specifically for your retirement, sitting alongside your EPF.  

Key Differences: PRS vs. EPF

While both the EPF and PRS aim to help you save for retirement, they operate differently with different contributions and tax relief. Here’s a quick look at some key distinctions:  

The Advantages of PRS

Choosing to participate in the PRS offers several potential benefits:

• Tax Relief: Contributions to PRS are eligible for tax relief, separate from the EPF limit. This can help reduce your annual income tax payable. 
• More Control: You have a say in where your money is invested by selecting from a range of funds offered by different PRS providers. These funds typically cater to various risk appetites, from conservative to growth-oriented. 
• Flexibility: While primarily for retirement, PRS allows for pre-retirement withdrawals under specific circumstances, albeit with a tax penalty for early withdrawals before age 55. 
• Portability: You can switch between different PRS providers if you find one that better suits your needs, without incurring penalties.
• Potential for Enhanced Returns: Depending on the funds you choose and market performance, PRS investments could potentially offer returns that complement your EPF savings.  

Should I Choose PRS or Contribute More To My EPF?

Ah, a good question indeed! While EPF serves as a sturdy foundation for many, exploring additional avenues can offer tailored benefits. Let’s consider whether directing more funds towards your EPF or venturing into the PRS might be the more advantageous path for you.

Consider PRS if:

• You have already maximised your EPF contributions and the associated tax relief.
• You are seeking greater diversification in your retirement investments beyond EPF’s portfolio.
• You desire more control over your fund selection based on your risk appetite and time horizon.
• You want to take advantage of the separate tax relief of up to RM3,000 annually on PRS contributions.
• You are comfortable with market-linked returns and a potentially wider range of growth opportunities.

Consider increasing EPF contributions if:

• You have not yet maximised your EPF contributions and the associated tax relief.
• You prefer a stable, hands-off approach to retirement savings with a guaranteed minimum dividend.
• You prioritise lower risk and a more predictable growth trajectory for your retirement funds.
• You are comfortable with the investment decisions made by EPF or its high dividends.

1. Getting Started with PRS in Malaysia

If you’re considering taking the next step and participating in PRS, the first thing you’ll need to do is select a PRS provider. Several established financial institutions in Malaysia are approved to offer these schemes, each with their own range of fund options and service approaches.

• AHAM Asset Management Berhad  
• AIA Pension and Asset Management Sdn. Bhd.  
• AmFunds Management Berhad  
• Hong Leong Asset Management Bhd  
• Kenanga Investors Berhad  
• Manulife Investment Management (M) Berhad  
• Principal Asset Management Berhad  
• Public Mutual Berhad  
• RHB Asset Management Sdn Bhd  

Take the time to compare what each provider offers, the fees, terms and conditions.

2. Opening an Account:

Many providers now offer online enrollment through the Private Pension Administrator (PPA) website, PRS Online, which can streamline the process. Here are some key things to keep in mind if you choose this route:

• Eligibility: Online enrollment through the PPA is currently only available to Malaysian citizens residing in Malaysia.
• PPA Account Opening Fee: The one-time PPA account opening fee of RM10.00 is currently waived for all new enrollments. 
• Sales Charge Waiver: If you are 30 years old or younger and enroll online through the PPA, you may be eligible for a 0% sales charge from the PRS provider. 
• Transaction Processing: After successfully completing your online transaction, your contributions will be forwarded to your chosen provider for processing. You’ll receive a separate acknowledgement from them once the units have been created in your account. Note that the successful online transaction doesn’t guarantee account opening, the provider may take up to 7 business days to confirm or reject the application and may request further information for verification.

3. Contributing PRS Fund

Making contributions to your PRS account is a flexible process, designed to accommodate various financial situations. You have the autonomy to decide how much you wish to contribute and how frequently you make these payments, be it a regular monthly amount or ad-hoc lump sums. 

Most providers offer several convenient methods for depositing funds into your account, including online bank transfers and direct debit arrangements from your bank account.

Read more: The 24% Question: How US Tariffs Could Affect Your Business

4. Selecting Your Funds

A key feature of the PRS is the ability to choose how your contributions are invested through the selection of specific funds offered by your provider. These funds typically cater to different levels of risk and potential return, ranging from lower-risk conservative options to higher-growth aggressive ones. 

• Conservative Funds: These funds generally invest in lower-risk assets like fixed income securities, aiming for capital preservation with modest growth. 
• Moderate Funds: These funds strike a balance, investing in a mix of equities and fixed income instruments, seeking a moderate level of risk and return.
• Growth Funds: These funds primarily invest in equities, aiming for higher potential returns but also carrying a higher level of risk.  

You usually have the option to switch between different funds offered by the same provider as your circumstances or outlook changes.

5. Monitoring Your Investments

Once your funds are selected and your contributions are being invested, it is important to keep a regular eye on their performance.

PRS providers typically offer periodic statements and online portals that allow you to track how your chosen funds are performing. This regular review will help you understand if your investments are on track to meet your retirement goals. 

Should your circumstances or the performance of your funds warrant it, you can then make informed adjustments to your fund selections to better align with your evolving needs and the prevailing market conditions.

Make PRS Part of Your Retirement Strategy

Retirement planning isn’t just about saving, it’s about strategically growing your wealth to ensure a comfortable and secure future. 

While the EPF remains a vital pillar of retirement savings for Malaysians, the Private Retirement Scheme offers a valuable opportunity to enhance your financial security in your later years. 

At Accounting.my, we believe that exploring options like PRS, and understanding how they integrate with your broader financial picture, is a proactive step towards achieving a comfortable retirement. Our financial planning expertise can assist you in evaluating whether PRS aligns with your individual circumstances and risk tolerance, ensuring you make choices that support your future aspirations. 

Taking that extra step to explore options like PRS today, with the right guidance, can make a significant difference to your tomorrow.