Prepare your retirement plan early

PETALING JAYA: Transformasi Nasional 2050 (TN50) aspires to address the issue of retirement in the country, according to Private Pension Administrator Malaysia (PPA) CEO Husaini Hussin.

Malaysia will have a larger aged population by 2050.

People would have to be prepared to go into retirement, and formulating a proper retirement savings plan as early as possible would ensure a smoother transition, he said.

“Instead of considering your retirement plans in 30 years – start now, start small. It will definitely help to increase one’s readiness towards retirement years,” Husaini told StarBiz.

The PPA is a central administrator for the Private Retirement Scheme (PRS), established to administer and promote PRS industry growth.

The central administrator also plays a role in educating the public to invest through proper channels by identify legitimate consultants through the Federation of Investment Managers Malaysia and avoid get-rich-quick schemes.

According to Husaini, studies have shown that the ideal amount of savings that will help see one’s retirement through are two-thirds of one’s current monthly salary.

Hence, one needs to save one third or 33% of monthly salary for retirement.

From this figure, an estimated 23% of the monthly salary has already been channeled to the Employee’s Provident Fund (EPF), leaving 10% to be saved by the employee for his or her retirement years.

Under the PRS, a voluntary savings and investment scheme, account holders can get a RM3,000 tax relief each year, while Malaysians within the age bracket of 20 to 30 years old will also receive a one-off Youth incentive of RM1,000 in their PRS account.

Savings in PRS accounts will be invested in funds offered by PRS providers ranging from conservative, moderate, or growth.

The eight PRS providers registered with PPA are Affin Hwang Capital, CIMB Principal Asset Management, Public Mutual, Kenanga and RHB Asset Management, Manulife and AIA and AmInvest.

Apart from individual PRS accounts where users manually deposit funds into their respective accounts, PRS also offers Corporate PRS. The Corporate PRS enables employer contribution of up to 7% on behalf of the employee and can facilitate individual PRS contributions through employee salary deduction.

While employers are already contributing 12% to 13% of their employees’ remuneration into EPF accounts each month, the employers can contribute an additional 6% to 7%.

This will add up to the 19% tax incentive for employers who contribute to approved schemes.

“Employers can also facilitate individual PRS contribution by deducting it from employees’ salary.

“Save before you spend,” said Husaini.

As of Sept 30, 2017, there were 265,567 PRS members, signifying a 30% increase from last year’s figures.

Husaini hopes that this figure will double next year, in line with growing awareness and incentives offered.

From the total number of PRS members, some 17% constitute the corporate PRS member base with more than 500 corporations on board.

In March this year, the percentage of corporate PRS members was only 9%.

Meanwhile, assets under management has grown by 40.13% to RM1.87bil in September 2017.

Other benefits of Corporate PRS include enhancing corporate reputation as a caring employee, attracting and retaining talents as well as rewarding performance via merit bonus and vesting schemes.

Vesting schemes are conditional employer contributions that are based on the years of service.

In line with the upcoming Budget 2018, PPA has also tabled a wishlist.

Husaini said incentives were high on PPA’s list. “We are encouraging the Government to offer additional incentives – a prominent feedback that we have been receiving from the PRS members. However, we also want to make sure that Malaysians contribute more to PRS because they need to save more for their retirement.

“With PRS being a voluntary scheme and only five years since its inception, it requires time to gain traction like the EPF.

“Hence, to encourage and inculcate the right saving behaviour where employees make monthly or voluntary savings – this requires some nudging, usually in the form of incentives including the RM3,000 tax relief, which we hope can be extended beyond 2021,” said Husaini.

He added that PPA is also working on having more value-added services on its website to enable seamless PRS transactions.

The administrator has since set up online top up and nomination applications on its site, and plans to offer online enrollment and switching of PRS providers or fund types next year.