Making The Most Of PRS Tax Relief

Perkongsian bermakna!

Nowadays, some may not think much about saving for retirement as society is more inclined to “live in the moment”. After all, how sure are we that we will be able to enjoy the benefits of our savings when the time comes? Moreover, some may tend to believe that things will turn out fine in the future. Although it is good to live in the moment, one should have a “safety net” when it comes to saving for retirement as the future itself is uncertain. So what is PRS Tax Relief and the objectives of it?

Introduction to PRS

With all this information in mind, let us look at the Private Retirement Scheme (PRS) and what it is. PRS is a long-term, voluntary savings and investment scheme available to all Malaysians, whether self-employed or employed. There is a wide array of retirement funds that can be chosen depending on the individuals’ goals and resources. The idea here is to provide long-term returns for individuals in a disciplined and regulated environment. 

Objective of PRS

So, what is the main objective of PRS? It is one of the features of the Economic Transformation Programme under Entry Point Project 6 (EPP 6) to enhance living standards during retirement through savings. 

Saving for retirement

Saving for retirement is crucial to ensure you have a comfortable and fulfilling life once you reach retirement age. According to projections from the United Nations – World Population Prospects – the life expectancy of Malaysians in 2022 is 76.51 years, a 0.19% increase from 2021. This makes it necessary for us to have enough savings to last us till the minimum retirement age.

That’s a long way off!

When it comes to retirement, one may actively avoid the topic thinking, “That’s a long way off!” or “I have so much more time!”. However, for those who are planning for a comfortable and good future upon retirement, you might have certain concerns along the way. Whatever your concerns may be, it is better addressed now rather than be caught in a tough situation later in your life. 

Retirement concerns 

Having enough money

All these years, you have probably enjoyed a high quality of life and reaped the benefits of your hard work. A steady flow of income is what you get when you are working but what happens when you retire? This is one of the major concerns: whether you will have enough money to live how you are doing so now. Hence, you may need to consider contributing to PRS, in particular, or any other retirement scheme. 

Lasting a lifetime

The length of one’s life is unknown. It’s safe to say that with a life expectancy of 76 years old as on average, you would need enough savings to last at least 15 to 20 years. The last thing you want is for your savings to be spent unnecessarily beforehand. So, here’s another reason to contribute to a retirement fund. 

Considering inflation

As living costs rise over time, it is important to prepare for higher expenses. It is equally important to ensure the sustainability of your savings. With a scheme such as PRS, you may have better chances of maintaining your living standards after you have retired too. 

How PRS works

PRS is regulated by the Securities Commission Malaysia (SC) and there are several key entities worth noting including the PRS distributors and consultants, the Private Pension Administrator Malaysia (PPA), PRS providers, and Scheme Trustees. The Scheme Trustees are responsible for the compliance of PRS officers, providing pricing and ensuring that transactions are accurate and accounted for. 

Benefits of PRS

PRS offers numerous advantages. Firstly, it is catered to those who want to contribute to retirement savings for the future and those who want to have some form of savings even after they retire from employment. Second benefit is the fund options are based on your age. Find the most suitable fund to suit your stage in life.  

Then, there is a tax relief of up to RM3,000 yearly (terms and conditions apply). Regulated by the Securities Commission Malaysia, the schemes are protected by Scheme Trustees. 

So, through PRS, you can enjoy double benefits. You can build savings that are sufficient and sound through a regular and safe retirement contribution plan while enjoying tax relief as well. 

Moreover, PRS is like a second EPF where you can’t access your savings easily if you are under 55 years of age. Since the minimum investment is RM100, it is an affordable way to save.  

So, why save in PRS?

With PRS, you can have the life after retirement that you always dreamed of. You can invest your time in what really matters – family, friends and your interests. It’s time to take life at your own pace and savour the special moments. One popular recommendation is that you keep at least two-thirds of your income for your retirement. 

The Private Pension Administrator Malaysia (PPA) recommends that you save a third of your monthly salary to meet this amount. Hence, other than the mandatory contributions (such as EPF), with PRS you only need to supplement another 10% to have the life you want during retirement. Furthermore, saving is now convenient with PRS through PRS online. You can access your account at any time and anywhere and stay connected.  

Accessible and appealing

Based on 2020 research done by the PPA, almost six in ten Malaysians in the corporate sector have not started preparing for their retirement. However, it has been noted that the Securities Commission Malaysia is committed to “expanding the depth and breadth” of the PRS offerings and its services. This initiative includes encouraging the use of technology making it more accessible and appealing to the younger generation.

In line with this, the PPA also stated that they will work closely with the SC, PRS providers and consultants to promote awareness about the scheme among the youth and for them to think about retirement savings at an early age.

Choose Your PRS fund

Once you have decided to invest in PRS, you need to choose a provider. You can do so based on your priorities, preferences and purposes. Do your research to make the best decision. You might want to look into factors such as reliable dividends and market performance. Next, you have to choose the particular fund that you want. This decision may be based on your age and specific objectives. Then you need to determine how much to invest. Carefully consider your options and what kind of life you want to live when you retire. 

PRS withdrawals

The instances where you can make a withdrawal from your PRS are: 

• after you reach your retirement age
• when there is a death of a member
• before retirement age, you may make withdrawals from sub-account B partly or fully 
• when a member permanently leaves Malaysia 
• for health and housing and special cases such as COVID-19.

It is worth mentioning here that withdrawals for housing are applicable to members who have more than RM500 in their sub-account B. Hence, the individual can make a withdrawal once a year for the purchase of a house; building a house, and reducing housing loans. 

It is also noteworthy that the government of Malaysia extended the RM3,000 tax relief for PRS until 2025. This was announced under Budget 2021 with the aim of preparing Malaysians for their retirement, making it a national priority.  

PRS and EPF

Ideally, it would be good to have both EPF and PRS funds while one is earning income from their employer. Malaysians are opting to save in PRS as an additional “nest egg” while complementing their contributions to funds such as EPF. With PRS, you can start off with a contribution as small as RM100 and select from the age-based selection or the self-selected option from the 8 providers.

While EPF is mandatory and has a minimum guaranteed return of 2.5% per year, PRS is voluntary and its returns are non-guaranteed. Undeniably, small and regular contributions will make up a substantial amount over the years.  

The idea is to start small and when income increases make corresponding contributions to PRS. It’s all about being consistent and responsible in making your monthly contributions. Like EPF, which has become a norm for most employees, PRS can also be an integral part of your career contributions with the future of retirement in mind. 

PRS and PPA

The central administrator of PRS is the Private Pension Administrator Malaysia (PPA) which provides services for the benefit of members in terms of record keeping, administration and customer service. PPA was launched on 18 July 2012 and is an approved body by the Securities Commission Malaysia under Section 139C of the Capital Markets and Services Act 2007 created to protect members and educate the public on PRS.

More About PPA

PPA’s vision is to “administer and contribute to the development of PRS for the well-being of all Malaysians.” It also has certain roles and responsibilities in terms of central administration, industry development and advocacy. 

Roles and Responsibilities

As a central administrator

The PPA is responsible for account management, transactions and efficient administration for members to keep track of their accounts. This also includes providing a call centre for members who have pertinent and important questions.  

Development of industry

The PPA provides comprehensive information on the PRS industry, providers, distributors, schemes and funds while educating the public on PRS and retirement in general.

To support

In line with its objectives, the PPA strives to gain the confidence of the public while at the same time protecting its members’ interests. 

In addition to these roles and responsibilities, the PPA provides “vibrancy” to the industry through marketing campaigns and events; digitalisation; financial literacy; and collaborations. Additionally, it provides privileges to members such as lifetime membership, online accounts and PRS nominations. Then, it provides support to members and arranges for account administration services.  

PPA online account

Upon investing and opening your PRS account with the provider of your choice, you will get a lifetime membership with PPA and your online account number. With this facility, members can view their transactions, investment details and access performance reporting at their convenience. 

Kesimpulannya

Even after all the discussion and debate on PRS as above (including the RM3,000 tax relief!), it is still up to the individual as to whether to contribute or not. Essentially it would depend on one’s current earnings and whether he or she is willing to make regular contributions to PRS. The advantages are plenty but one should not need to compromise on their quality of living every month. 

Schemes such as PRS are a way of focusing solely on one’s future. It does require a certain degree of commitment and dedication but it will pay off in the long run. And that’s where living a meaningful and fulfilling life upon retirement comes into play.