This is the continuation of Private Retirement Scheme Roadshow – Key Takeaway Part 1. Click here if you missed the first part. This part contains in-depth info on PRS at the time of writing, plus some thought-provoking questions/comments from the speakers and myself.
How many fund each PRS provider provides?
Minimum of 3 types of fund – Growth, Moderate and Conservative. See details below
You get to choose. However, if you do not specify, the default option will be chosen for you catering for different age groups.
Can I switch funds within Private Retirement Scheme?
Yes, anytime. Can switch PRS provider also once a year subject to yet-to-be-determined terms imposed by PRS provider.
Got Account 1 and 2 like EPF?
Oh yes, See this.
Do I have to commit a fixed regular contributions into my PPA account?
No fixed amount or fixed intervals for contributing to your own PPA account
Got tax incentive?
Sure. RM 3,000 tax relief for individuals – for the first 10 years from YA 2012 onwards
Can withdraw from PPA account before age 55 ?
This is the red flag. You can only withdraw from Account B, once a year. On top of that, for whatever reason, a tax penalty of 8 freaking percent (goes to IRB) of withdrawal amount will be deducted by PRS Providers before balance is credited to member’s account.
A very angry uncle got pretty pissed when he asked this question to the panel of speakers.
This essentially means I got taxed for using my own money? This just seem insensible to me, although the its purpose is to discourage withdrawal. It should have reasons which justify for withdrawals without tax penalty – like EPF (buying house, children education, etc). This is the perhaps the most absurd part of PRS.
By now, you should have this 3 very prudent questions in mind –
1. If you are wearing the hat of an employee – “I already have EPF, why PRS, what is the point?”
2. If you are a PRS consultant, and you are talking to a prospect, expect him to ask – “There’s already EPF, what’s the point of PRS?”
3. Third scenario – You are the financial controller answerable to the company’s board of management, and you want to propose PRS for company staff. Management will question you – “Why are you doing this? We already have EPF, why PRS?”
Even Ng Chze How, Director of Retail Funds at AmInvest don’t have a solid answer, but he only had this to say:
- If I have a bank account, do I stop opening second bank account?
- I have one life insurance policy, does that mean I stop buying a second policy?
- If I already invested in one unit trust fund, does that mean I stop investing in another unit trust fund?
If you have a better answer, let him know so “…he could answer the press better.”
I’d be pretty blunt here – PRS is not for the savvy retail investors, who has the knowledge, time and discipline to manage their own investments, which may give you potentially higher returns, and give you more control. Then again, if you lack of discipline, you wouldn’t be able to make PRS work for you anyway because the contribution schedule is flexible.
The Missing Puzzle in Retirement Planning
Like EPF, PRS only increases the odds that you having (hopefully) enough retirement funds at the point when you start to retire to last you till the day you die . For many people, the lump sum withdrawal at age 55 will send a surge of euphoria in you that you are now filthy rich. You feel it is the time to reward yourself – blow it on that dream super car or vacation you have been longing for so long. Until, reality strikes a few years after that and you realize you spend too much on unnecessary stuff. Years of saving up your retirement fund now amounts to nothing because you didn’t re-invest most of the retirement nest egg. All your pre-retirement effort would be in vain now – it just dawned upon you still need to live for 20 or more years, and inflation is always there to haunt all of us!
Now you know why you might be part of the statistics below (source: Money Compass)
The government has been concerned about the inadequacy of EPF savings as statistics show that 50% of contributors exhaust all of their EPF savings within five years of retirement and only 18% of active members aged 54 have adequate savings of at least RM173,000. It is also estimated that about 70% of retirees use up their EPF lump-sum withdrawals within 10 years of retirement.
Retirement is about stop working for many people but here’s the probable new definition:
Retirement is about the security of having enough money, constantly reinvested, to sustain your lifestyle & achieve life goals, whether you choose to work or not.