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Saturday April 28, 2012
Twenty-nine financial intermediaries registered their interest to become Private Retirement Scheme (PRS) providers, out of which 15 made full submissions by the deadline. Based on a list of criteria, eight were elected as initial intermediaries earlier this month. Six of them tell StarBizWeek how they are making preparations towards this end.
As a PRS provider, what would be your exact role in this scheme?
CIMB-Principal: As a PRS provider, CIMB-Principal will be offering a range of retirement saving choices for the public to voluntarily invest in. Once our proposal is approved, our key roles are to operate CIMB-Principal's PRS and manage the retirement savings in accordance with the individual's choice.
Manulife: Within the next six months we intend to roll out pension funds here. Our strength lies in our global products where we are able to offer fund differentiation and wider choices to PRS participants. Manulife has top performing funds in the US pension fund platform which we are keen to bring in. We also have access to Manulife's Hong Kong pension funds platform.
Our role is to safeguard the participant's asset, making sure the money will be invested according to the investment mandate.
Hwang Investment: Hwang Investment will establish a PRS scheme and will be the fund manager of the scheme's investment portfolio. We will be offering retirement investment solutions and our offerings will be designed for three different risk profile investors the conservative investor, the moderate risk investor and the risk-taker. Within these three types of offerings, there will be a conventional and a syariah-compliant asset option to suit different investor's needs and belief.
We are also focusing on raising awareness in tandem with educating the public about PRS, investment and retirement subjects as awareness and action in line with these subjects are key to the success of such a scheme. In addition to running our own publicity campaigns, we will be conducting training and education sessions with our distributors to ensure the message hits the ground.
It is important to note that we are in this programme for the long term as investment and retirement is a long-term subject matter. As such, we are ready to invest our resources in the initial stage of the programme to penetrate the local retirement investment market and build interest and momentum for this scheme. We are ready to plough back all our fees earned from this channel at the initial stage to the infrastructure and marketing activities in order to get the scheme going.
RHB Investment: As a PRS provider, our role is to develop retirement funds for corporate and individual members to invest in as well as to manage the fund from an investment point of view and to ensure the smooth operations of the fund. To ensure the success of the scheme, continuous education would be a key cornerstone of this initiative.
ING Funds: Our key role as a PRS provider would be to contribute our efforts towards establishing the PRS as an additional retirement scheme towards helping Malaysians be better prepared for their retirement. Our involvement with the PRS is providing alternatives for Malaysians to make additional voluntary defined contributions to accumulate assets for their retirement and the provision of retirement pension income thereafter.
AmInvestment Bank: As a PRS provider, we must act in the interest of members as a whole with the aim of providing cost-effective voluntary retirement funds and ensure that the scheme is operated in a proper and efficient manner. We must also ensure the schemes are accessible by a wide cross-section of the population, rather than just a particular segment of population.
At this point, what details can you make available to the public to provide a clearer picture of PRS i.e. what sort of returns can the public expect?
CIMB-Principal: The PRS will provide an additional channel to save for retirement. As it is a voluntary scheme, there is no required fixed amount or fixed intervals for an individual's contributions into his or her PRS account. The PRS account structure is split into two accounts. There is a PRS Account A, where 70% of contribution will go. The balance in Account A will be retained until the person reaches the official retirement age or leaves the country permanently. The PRS Account B, where 30% of contribution will go, is more flexible. The balance can either be left to accumulate or the individual can decide to withdraw any amount up to the balance in Account B once a year, subject to a tax penalty.
The PRS exists to complement the Employees Provident Fund (EPF) as well as to help those who do not have an EPF account. EPF members will continue to have the same percentage of monthly pay set aside for them into their EPF account. That does not change. The PRS provides more flexibility and choice because individuals can now invest according to their age and risk-return tolerance. The potential returns will definitely vary because an individual really can customise and select what is appropriate for him or her.
On the one hand, as an example, if a person already has 23% of monthly pay being allocated for EPF, that person may elect that his or her additional PRS contributions be invested in more aggressive equity funds. Recall that on the whole, the majority of money set aside for and by the individual on a monthly basis is still being invested conservatively by EPF.
On the other hand, a person without an EPF account, who intends on using PRS as the main vehicle to save regularly for retirement, will likely choose different investment options. If the person is relatively young, he or she can select funds with higher potential return and risk. If the person is approaching retirement age, he or she will likely select more conservative funds.
If a person decides to open and contribute to a PRS account but does not specify his or her investment choice, default solutions will be selected for the individual. The three profiles are:
Growth (maximum 70% equity) for those below 40;
Moderate (maximum 60% equity) for those between 40 and 50; and
Conservative (maximum 20% equity) for those 50 and above.
The balance of the contribution will be invested in fixed income and money market instruments.
Manulife: The returns of PRS will be linked to risk and individual preference. We will provide a choice of funds, initially the core funds and at least one more. We will not indicate the percentage returns as we are not allowed to highlight the range of returns by the Securities Commission (SC).
Hwang Investment: The central theme to this scheme is to address the insufficient, if not lack of retirement savings, by the general population. In essence it is to instill the importance and urgency of starting early to plan for one's retirement. Building a retirement fund is about growing one's nest egg to provide passive income during their golden years. At this level, the type of information will be very basic and introductory.
It is critical to ensure the public understands the function, purpose and overall structure/process involved in this scheme and, most importantly the risks involved. Awareness and understanding will help address any form of uncertainty and suspicion towards such schemes.
In terms of investment returns with regards to our three types of risk portfolios, we are expecting the conservative portfolio to provide at least the returns that EPF is declaring so it encourages contributors to invest. For the aggressive portfolio, we are looking at equity-fund type of returns, while the moderate risk portfolio returns will fall between the conservative and the aggressive portfolio returns. Note that all investment portfolios need not be a capital guaranteed nor capital protected structure.
RHB Investment: PRS is meant to complement EPF in terms of objective. Therefore, performance against EPF will be the natural expectation as a retirement planning product should give consistent returns, relative to the typical asset allocation undertaken.
ING Funds: The PRS is an additional voluntary private retirement scheme that seeks to encourage Malaysians to increase their contributions towards securing their retirement future. The PRS is open for all employees and the self-employed to make voluntary contributions that will provide for their future retirement pensions. PRS contributors will have the choice to select from the approved PRS Providers and have the flexibility to choose products that will meet their personal risks and expected returns, over their retirement time frame.
AmInvestment Bank: The value proposition of our PRS fund offerings will be centered towards balancing returns versus risk, low cost, choices with default options and user friendliness. We will provide a range of funds with risk adjusted returns that commensurate with risk profiles of the investors. For example, we will have more choices on income generating funds for investors who are close to retirement age whilst more aggressive growth funds will be available for younger investors. Under the guidelines, a pre-retirement withdrawal option must be allowed from sub-account B (which constitutes 30% of all contributions made to a fund by a member) once every calendar year, one year after the first contribution. We will allow switching of funds on a yearly basis.
How will the PRS develop/change Malaysia's private retirement landscape?
CIMB-Principal: The PRS will help boost the existing private retirement landscape as it acts as an additional avenue for Malaysians to save for their retirement. Having multiple sources of retirement income will assist Malaysians in achieving a more comfortable retirement, rather than solely depending on their EPF or their children.
It is also expected to encourage Malaysians to save more for retirement. The PRS framework gives the flexibility to members to choose providers and funds. In addition, providers are incentivised to perform well as members can move their PRS accounts to the provider of their choice.
In the long run, members stand to benefit from potentially good returns on accumulated retirement savings, which will improve the standard of living for retirees. Malaysia is taking the needed steps to empower and assist its people so that they are financially self-reliant and independent in their golden years.
Manulife: Private pension will be and is one of the very important pillar of the pension arrangement. This will help everyone to enjoy a good retirement. It forms as one of the important elements for retirement together with the EPF system and the general welfare provided by the Government.
We believe Manulife is well positioned to change the Malaysian private retirement landscape. Given the fact that Manulife is a leading global provider of pension plans, we have global products which offer funds differentiation.
Hwang Investment: PRS should function as the fourth pillar in the pension model framework proposed by the World Bank. It aims to complement EPF and take the burden off the national pension provider as PRS is an ideal savings option for the self-employed and business owners, in addition to employees' impending golden years.
RHB Investment: Retirement planning has a 5-pillar system which is defined by the World Bank. In Malaysia, the private retirement landscape has been primarily driven by EPF but statistics have shown that savings from EPF is not enough. There are also those who invested in unit trust funds or insurance schemes as part of their retirement planning other than depending on EPF.
ING Funds: The PRS Scheme is designed to strengthen the social security system of the country, by setting up a voluntary retirement pillar that will provide added retirement funding and security for the Malaysian public. Whilst the EPF serves as the mandatory employer-employee scheme, those who wish to contribute above the statutory limits can do so under the PRS scheme. The PRS will further raise the awareness and need for the Malaysian public to take care of their long term retirement security and will be a catalyst in developing the retirement services industry to meet the aging needs of the population.
AmInvestment Bank: Private pension should supplement retirement savings under a well-structured and regulated environment, thanks to the SC. We believe the private pension industry will encourage the concept of savings at early stage as competition among the industry players will create more awareness.
What are you currently doing to promote and educate the public on the scheme? Or what sort of plans do you have in the pipeline in this regard?
CIMB-Principal: Currently, as the PRS guidelines have just been issued, the main avenue to educate the public is via the media. Not many specific details can be shared until a company's PRS proposal is approved by the SC. Once that happens, outreach and education will come via traditional communication and sales distribution channels. The media remains the single most powerful means to educate the wider population out there on the potential of PRS.
Manulife: We plan to carry out promotional and educational activities for the general public including advertising. Among the plans in the pipeline are the use of digital media to attract tech-savvy consumers and joint promotional activities with regulators. We will make use of our company website to provide more details on the PRS. The most important thing is to educate the participants on how they can prepare for retirement.
Hwang Investment: We are currently working with the SC to get the infrastructure and details going so PRS can hit the ground, by the beginning of the fourth quarter of this year. On our end, we are focusing on operational viability and strategising marketing campaign so it is in line with the broad PRS message before we launch it once the industry's platform is ready
RHB Investment: We have always been in the forefront in advocating retirement planning and financial planning for our investors. While on a bigger scale, we plan to organise more roadshows and financial talks as part of the education process to the public.
ING Funds: As the PRS Scheme is focused on providing retirement solutions, we will be embarking on a marketing campaign to promote awareness and the need for Malaysian public to embrace of the new scheme. The public is already well aware that EPF contributions may not be sufficient to help them secure their retirement, with reported cases in the media that EPF members have insufficient retirement income and cases where lump sum withdrawals have been exhausted within 3 years. We plan to educate our PRS members the importance of saving for retirement but also the importance of managing their funds actively to achieve their retirement goals.
AmInvestment Bank: We have some plans in the pipeline. Among others, educational articles on PRS industry topics, media briefings and interviews on investment topics, participation in public conferences.
How can you convince the public on the effectiveness/benefits of the scheme?
CIMB-Principal: The PRS is the next step in the evolution of retirement planning. People are living longer and having fewer children. They need to start maximising all available avenues to save and invest for their retirement. The PRS is a structured and effective avenue to accumulate retirement monies because it gives people the opportunity to adjust their savings and investment decisions to reflect their own financial situation and tastes. At the end of the day, the costs of saving and investing too little are greater than the costs of saving and investing too much. There are a number of people in Malaysia who are definitely saving and investing too little and there are many who say they should' save more. The PRS is an additional vehicle which is well regulated and governed. In addition, the Government has encouraged people to take advantage of the PRS by introducing a tax relief of up to RM3,000 a year.
Manulife: We intend to highlight the important fact that Malaysians are not saving enough for their retirement. We will also push the message through that PRS will help to increase the overall savings level amongst Malaysians.
PRS is a low cost investment instrument that will allow the undersaved population to invest.
Hwang Investment: Understandably there will be a lot of reservations towards an untested and ambitious scheme such as this. However, there are the following factors that will help in building confidence and convincing the public on the effectiveness of setting up such as scheme:
i. The blueprint is based on an existing and successful retirement fund manager EPF. The objectives are the same, to ensure the Malaysian public will have sufficient funds for a comfortable retirement. The main difference being that this will be managed by independent, award winning fund houses that have sound investment track records of at least 10 years.
ii. The added benefit to PRS is, it allows for two key things firstly, choice in terms of fund manager and secondly, customisation of the investment portfolio from the selection of risk levels, portfolio allocation and management to the contributions. This flexibility is equivalent to investing on your own, except the PRS providers are selected by SC to be the most qualified to manage such funds.
iii. Added layer of control selection of PRS providers are based on SC's requirements.
iv. The front end cost should be competitive or lower by the PRS providers compared with investing into unit trust funds outside this scheme.
v. There is a RM 3,000 tax relief to the contributors for investing in the portfolios within the PRS.
vi. The aspiration to live a quality life during retirement years should be the driving factor behind PRS. It is crucial for the public to understand the importance and the urgency to create their own retirement pool and not solely rely on EPF for their retirement. The fact that most retirees exhaust all their EPF savings within three years after retirement should ring a warning alarm for all to start taking their own retirement planning seriously and act early. Remember, growing old is an inevitable fact of life; the difference is in enjoying one's retirement years or suffering from lack of financial support when they are old. The only thing that can change these two stark differences is acting now.
RHB Investment: One must understand that effective retirement planning has to start early or else it will be insufficient to sustain one's golden years post retirement. With inflation eroding our purchasing power, the urgency to save for the golden years has become a subject close to everyone's heart.
Therefore, PRS's objective of growing one's investment by making their money work harder is an initiative that many will find attractive and a compelling proposition. Furthermore, PRS gives the public another alternative to diversify their investments while at the same time enjoy potential compounded returns through regular contributions to the scheme.
ING Funds: The public can be assured that PRS will be properly implemented under the supervision of the SC, which will require PRS providers and distributors to be properly licensed and the products offered by the providers to be approved by the SC. The regulatory and governance framework for the proper functioning of the PRS will be there to provide “investors protection”, while promoting the PRS as an additional alternative to build and manage the members retirement funds.
Secondly, the additional contributions under the PRS will build up a complementary fund, on top of members' EPF funds. We have so often read in the papers that savings in the EPF are not enough to sustain Malaysians in their retirement. The PRS will serve to further ensure that the added retirement funds will better prepare Malaysians for their retirement.
AmInvestment Bank: PRS should be seen as a retirement fund that is “on top” of EPF, and not “instead of” EPF. The PRS supplements retirement savings under a well-structured and regulated environment. In addition, there is tax benefit investing into funds under PRS, whereby a personal tax relief of up to RM3,000 would be given to contribution by individuals to PRS approved by the SC. Further, a tax exemption was also announced on income received by funds within the PRS.
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