5 Reasons to Consider the Private Retirement Scheme (PRS)

What is The Private Retirement Scheme?

It is a savings and investment program to help Malaysians financially prepare for retirement.

As we’ve heard time and again, your EPF savings alone will not be enough to sustain you in your golden years.

Thus, an additional, regulated, structured scheme like the PRS can be incredibly beneficial to all Malaysians hoping to improve their finances for retirement.

It’s a safer investment option too, since the retirement investment scheme is operated by ‘Providers’ that are approved by the Securities Commission of Malaysia.

At present, there are eight PRS providers which include Affin Hwang AM, AIA, AmInvest, CIMB-Principal, Kenanga Investors, Manulife AM, Public Mutual, and RHB AM.

Let’s take a look at why you ought to consider saving for retirement with this scheme:

1. Personal Tax Relief

If you are eligible to pay taxes, you may be interested in the fact that contributions made to your PRS account can be claimed for taxes.

You are allowed to claim up to RM3,000 for PRS contributions each year, for a total of 10 years, up to 2021.

Claiming your relief can significantly lower your tax bill. Depending on your tax bracket and contribution, you can save anywhere from RM150 to RM840 per year in taxes.

Now at the same time, you’ll also be conserving cash for your retirement, so it’s win-win!

2. Youth Incentive Scheme

As mentioned, retirement planning should begin as soon as you are financially able. In fact, even those in their twenties can start putting money aside for retirement.

Currently, a special incentive exists for Malaysian youth, to encourage them to get started saving for their retirement with the PRS.

How it works is that if you contribute a minimum of RM1,000 into your PRS account, the government will top up another RM1,000 into your account; this is a one-off offer though.

It’s open to Malaysian citizens aged 20 to 30 years, but you’ll need to hurry if you want to take advantage of this scheme as it is valid until the 31 December 2018.

It was initiated by the previous government in 2013 and it isn’t clear yet if our current administration will continue with the incentive.

| See also: 30-something and still without a retirement plan? Start here, start now |

3. Retirement Option for The Self-Employed

If you are self-employed and concerned about your retirement, you are right to be!

Added complications arise when it comes to saving for retirement, as many will attest.

Consider that since you are responsible to manage and prioritise financial resources to operate your business and for immediate personal expenses; saving for retirement is often last on the list, if on any list at all.

Furthermore, it’s likely that as a self-employed person, you don’t have any other retirement plan – not even an EPF account (self-contributions or iSaraan are highly encouraged though).

Thus, it is a good idea to consider the PRS to supplement your retirement finances.

4. Funds Can Be Nominated To Loved Ones

The funds in the account can also be used as a financial gift for your family and loved ones in the unfortunate event of your demise.

It’s an added bolster to help your family with household expenses, especially if you are the sole breadwinner.

You can nominate up to six people to receive a specified portion (percentage) of the fund.

However, do note that Muslim nominations are subject to Islamic laws of inheritance.

5. Affordable To Get Started

If you have qualms about how costly it is to get started with PRS, know that it can be quite affordable.

The minimum amount varies with providers, but generally averages within RM100 to RM500 for initial contributions and from RM50 to RM100 for subsequent contributions.

Also, since this is a voluntary scheme, you don’t have to contribute to the account on a regular basis; however, it is advised that you make monthly contributions if possible.

Regular contributions can help reduce market risk and help you grow the fund to reach your retirement goals more efficiently.

Note that additional contributions can be made conveniently through PRS Online.

What Else You Need To Know

Now that you are up-to-date on PRS, here are two important pieces of information to take note of:

1. Exposure to Risks

There is a notable difference between EPF and PRS in terms of risk.

Where your EPF account is mandatory and secured, a PRS fund can be exposed to general investment risks as well as specific risks based on your portfolio.

Thus, know that your capital/returns are not guaranteed.

You can still choose a fund that matches your risk appetite, but it’s important to be clear about possible losses and risks.

Do clarify with your provider about ALL the potential risks. Note that first-time contributors are given a cooling-off right where they can ask for a refund.

The cooling off period lasts for not less than six business days from the date of the application (on receipt) by the PRS Provider.

2. Withdrawals

With the PRS, you can still withdraw from the account; the specifics of withdrawals depend on the PRS provider and your subaccount.

Of course, you should keep in mind that this money is for retirement purposes and should not be withdrawn unless absolutely necessary.

Now you have five more reasons to pump up your retirement pot with the PRS.

Let us know how you plan to save for retirement in the comment section of our Facebook page!