Malaysia’s voluntary PRS established

Prime minister (PM) Dato’ Sri Mohd Najib Tun Razak has launched the final component of the private retire- ment scheme (PRS) framework with the establishment of the Private Pension Administrator (PPA) and the approval by the SC of the first set of Private PRS.

At the recent launch of the PPA, the PM said the development of a private pension industry was crucial to the retirement needs of all Malaysians.

“My fervent wish is to ensure that each and every one of our young productive adults, and indeed the future genera- tions of Malaysians after them, will have enough savings and financial assets kept aside to be able to enjoy their retirement to the fullest. The goal is to have a robust and sustainable multi-pillar pension framework for the benefit of future generations of Malaysians.”

The establishment of the PPA is the final component of the PRS frame- work. This follows on from the establishment of the legal framework for the PRS via amendments to the Capital Markets & Services Act 2007 in October 2011 and the issuance of PRS Guidelines and Regulations in

April this year as well as the approval of eight PRS providers.

The PRS are voluntary retirement saving schemes structured by private sector fund providers which are licensed and approved by the SC. The funds under the schemes are also subject to the SC’s approval.

PRS are intended to provide employ- ees and the self-employed with an additional avenue to save for their retirement. A range of funds would be available to meet the individual’s retirement goals and investment profile.

They also offer an opportunity for employers to make additional volun- tary contributions towards the retire- ment savings of their employees.

Tax Relief of RM3,000

To incentivise participation in PRS, individuals are granted tax relief of up to RM3,000 and employers are provided tax deduction on contribu- tions to PRS made on behalf of their employees above the statutory rate and up to 19% of employees’ remu- neration. Tax exemption is also provided on income received by the PRS funds.

 

24 Funds by Eight PRS Providers

The first set of schemes comprising 24 funds by several PRS providers was approved by the SC and will be available for offer to the public from September. In line with this, the SC, PPA and PRS providers will conduct a series of educational and awareness programmes in the coming weeks to foster understanding and awareness of the PRS framework and key features of the schemes.

“As with any new industry, understanding of the product offerings is essential. It is important that contributors and potential members have all relevant information in order to make informed decisions,” said SC chairman Datuk Ranjit Ajit Singh.

Zaiton Mohd Hassan, who was named PPA’s first chairman, is Capital Intelligence Advisors Sdn Bhd’s managing director.

The other members of the Board are Datuk Nozirah Bahari, Dato’ Dr Thillainathan A/L Ramasamy, Ou Shian Waei and Ahmad Zakie Ahmad Shariff.

A One-Stop Centre

A one-stop centre, the PPA will play an important role in enabling infrastructure for the PRS by providing efficiency in the administration of the schemes. Account holders will have easy access to information and ease of transfers.

The SC regulates and supervises all intermediaries in the PRS industry from the PRS providers, the PPA and the scheme trustees to the distributors of PRS.

For more information on the PRS, visit the PPA’s website at: www.ppa.my.

Role of the SC in Regulating the PPA

The SC is empowered by law to regulate and supervise the PRS industry, which includes the schemes, PRS providers, PRS distributors and consultants, the schemes’ trustees, employer’s trustees and the PPA.

The legal framework mainly incorporates provisions under the Capital Markets and Services Act 2007, which enables the SC to exercise regulatory supervision over the PPA. This includes: • Being able to withdraw the approval that has been granted to the PPA. The grounds for withdrawal of approval is set out clearly under section 139F; • Approving the appointment of its directors and CEO (section 139E); • Approving the rules and any amendments to the rules (section 139I); • Requiring the entity to submit audited accounts to the SC (section 139K); • Specifying the main duties and responsibility, which include receiving of instructions from members, transmit- ting such instructions, keeping records of all transactions and such other duties as may be further specified by the SC (section 139H); and • Issuing directions as deemed necessary for the public interest (section 139ZL).

Legislations and Guidelines

The regulatory framework of the PRS industry is set out in the following: (a) Capital Markets and Services (Amendment) Act 2011; (b) Capital Markets and Services (Private Retirement Scheme Industry) Regulations 2011;

(c) New guidelines issued by the SC include: (i) Eligibility Requirements for the PRS Providers; and (ii) Guidelines on PRS.

The regulatory framework developed by the SC was a result of recommendations made to the government to accelerate development of the private pension industry in Malaysia.

PRS, which are an integral feature of the private pension industry, seek to enhance choices available for all Malaysians, whether employed or self-employed, to supplement their retirement savings under a well-structured and regulated environment.

Benefits of PRS

• To complement the current pension landscape by: – Creating an alternative platform for accumulation of

voluntary retirement savings to complement existing

mandatory retirement schemes. – Enhancing options available for individuals in terms of

choice of quality providers and funds for their retirement needs.

• Extending coverage (on voluntary basis) to all segments of the population. • To add depth to the capital market as a source of long-term funding for various capital market activities and to enhance the role of the investment management industry. • Wider stimulus effect in contributing to the economic growth and development of Malaysia.

List of PRS Providers

The eight PRS Providers approved as at 5 April 2012 are: • AmInvestment Management Sdn Bhd, • American International Assurance Bhd, • CIMB-Principal Asset Management Bhd,

• Hwang Investment Management Bhd, • ING Funds Bhd, • Manulife Unit Trust Bhd, • Public Mutual Bhd, and

• RHB Investment Management Sdn Bhd.

Frequently Asked Questions on PRS

1. What is a PRS?

A private retirement scheme (PRS) is a voluntary long-term investment scheme designed to help individu- als accumulate savings for retirement. It complements the mandatory contributions made to the Employees’ Provident Fund.

Each PRS will include a range of retirement funds that individuals may choose to invest in based on their own retirement needs, goals and risk appetite. The fund options under a PRS must be consistent with the objective of building savings for retirement and ensure that there is a prudent spread of risk.

2. What is the scope of private pension reforms undertaken by the Securities Commission Malaysia (SC)? The introduction of the PRS framework resulted from recommendations made by the SC to the government to accelerate development of the private pension industry in Malaysia.

The PRS form an integral feature of the private pension industry with the objective of improving living standards for Malaysians at retirement through additional savings of funds.

The PRS industry forms the third pillar in a multi-pillar pension framework and will complement Malaysia’s mandatory retirement savings schemes.

3. What is the regulatory framework governing PRS?

The Capital Markets and Services Act 2007 (CMSA), the Capital Markets and Services (PRS Industry) Regulations 2012 (the PRS Regulations) and the Guidelines on PRS form the regulatory framework for the PRS industry in Malaysia.

The 2011 amendments to the CMSA setting out the regulatory and supervisory framework for the PRS industry came into force on 3 October 2011. Under the new Part IIIA of the CMSA, the SC regulates the following key participants in the PRS industry:

• PRS administrator; • PRS providers; • PRS; • Trustee to the PRS; and • Trustee to employer-sponsored retirement schemes (Employer Trustee).

The PRS Regulations establish the duties and responsi- bilities of the PRS providers and schemes’ trustee, as well as requirements on approval of the PRS, the registration and lodgement of the trust deed and the disclosure document as well as other provisions on the register of members and meeting of members. The PRS Guidelines are aimed at providing a regulatory environ- ment that would safeguard the interests of contributors to PRS.

4. What are the key components of the PRS frame- work? The PRS framework comprises approved PRS providers, each offering a range of fund options under a PRS, where the assets are segregated and held by indepen- dent schemes’ trustees under a trust.

The law also caters for the establishment of a Private Pension Administrator (PPA) which would be responsible for the operation of an efficient administrative system for the PRS industry.

Underpinning the framework is a strong regulatory and supervisory structure based on the SC’s regulatory objectives of ensuring robust regulation and supervision of the PRS industry, promoting trust and confidence in the PRS and protecting interest of members.

5. What are the features of the framework to ensure a strong regulatory and supervisory structure? All relevant intermediaries in the PRS industry, namely the PRS providers, PPA, schemes’ trustee and PRS distributors require approval of the SC to operate and will be subject to ongoing regulatory requirements and supervision.

The PRS will operate as a trust structure with the schemes’ trustee ensuring the assets of the funds are segregated from the PRS providers. The funds under the PRS will be professionally managed by the PRS provid- ers with the purpose of meeting the retirement objective of members.

 

Further, provisions on vesting of contributions and rights to accrued benefits set out in the CMSA will ensure that accrued benefits will be delivered to members to meet retirement needs. Accrued benefits in the CMSA mean the amount of a member’s beneficial interest in a PRS.

A strong regulatory and supervisory framework will ensure that interests of members are safeguarded and protected, integrity of the PRS industry is upheld, risks are appropriately monitored and stability of the system maintained.

In addition to the SC’s supervision, investigation and enforcement powers, the SC also has the power to issue directions over the intermediaries in the PRS industry. The SC’s powers to issue directions include the ability to direct the intermediary to comply with the law, guidelines, conditions or restrictions, or take remedial action.

6. What is the role of the Private Pension Administra- tor (PPA)? The PPA refers to a PRS administrator as defined under section 139A of the CMSA. The duties and responsibili- ties of the PPA under the law (section 139H of CMSA) include taking into account public interest considerations in acting in the best interests of members and having regard to the need to protect members.

The PPA would promote efficiency and convenience to members through: • Facilitating and maintaining all PRS-related transactions made by members; • Facilitating portability between PRS providers; and • Undertaking promotion and general education or awareness on PRS.

7. How does an individual join a PRS?

To make contributions to the PRS, just contact the PRS providers of your choice and indicate your fund selection. At the same time or prior to contributing, you may open a PPA account by completing an account opening form that can be obtained from any PRS providers or from the PPA website, www.ppa.my, once the schemes are offered to the public.

Proof of identification is required at account opening: • Identification card, Police or Armed Force ID (for Malaysians) or Passport (for foreigners).

Once the PPA account is opened, you will receive your life-time account number and password.The above account opening procedures would differ for on-line transactions.

8. How does an employer make a voluntary contribu- tion on behalf of its employees? Where an employer seeks to contribute to the PRS on behalf of its employees, the employer may enter into an arrangement with one or more PRS providers of their choice. The amount of contribution is determined by the employer while employees choose the type of funds under the schemes offered by the relevant PRS provid- ers.

Where employees do not make a fund selection, the employer’s contributions would be channelled to the default option of the chosen PRS provider. Employer contributions may be subject to a vesting schedule which means the entitlement may only be vested to an employee’s account based on their terms of service.

9. What should I consider when choosing a PRS?

When making your PRS contribution, you need to take into account various factors such as your age, personal and household income, risk tolerance, retirement objective, suitability of the different funds under the various schemes to meet your retirement needs as well as the fees and charges of the funds.

There are different types of investors: • Some may be looking for steady returns. • Some are happy to grow their retirement savings very slowly. • Some are keen to chase higher returns. The approach may be different if you are single, young employee, double income young family, mid-career or already near retirement. For example: • If your retirement is remote, you may consider investing in some higher-risk instruments that can potentially generate higher returns; • If your retirement is near, you may consider opting for some relatively stable and conservative investments; or • If your retirement is some years away, you may consider investing in a balanced investment portfolio consisting of bonds and equities.

Our needs change through different stages of our lives. You should review your PRS portfolio regularly to ensure that it matches your retirement objectives.

It is important to bear in mind the cost of living and inflation in setting your retirement goal as well as think long-term. Do not be overly concerned about short-term market fluctuations.

10. Where can I obtain information when making a decision to contribute to a PRS? Potential members must receive the following documents before contributing to any fund under the scheme:

• Product highlight sheet, which provides a summary of the key information of the fund(s) under the scheme written in easily understood language; and • Disclosure document, either in electronic form or printed copy depending on the choice made by the potential member, which will provide more comprehensive information on the PRS. The objective is to enable the investor to make an informed investment decision. Contributors are advised to read and understand the disclosure documents and not solely rely on advertise- ments.

11. When can I start contributing to a PRS?

The SC is in the final stages of implementing the PRS framework. In line with the SC’s investor protection mandate, a period of general education and awareness on PRS has been allocated before an approved PRS may be offered to the public.

This is to allow potential members to get advice on the need to save for retirement and more information on the features of PRS.A list of approved PRS providers and their schemes will be published on the PPA’s website.

12. How do members keep track of their PRS invest- ments? Members will be able to check online via the PPA’s website or contact the relevant PRS providers.

They will receive statements on a periodic basis from the PRS providers and a consolidated statement on their investments from the PPA. This will include contributions held by every PRS provider.

13. Can contributions be withdrawn from PRS?

Withdrawals from PRS or from any funds under PRS may be made in part or in full and under the following circum- stances: • After the day the member reaches retirement age, which is currently at 55;

• Following the death of a member; • Permanent departure of a member from Malaysia; or

• For pre-retirement withdrawals. With respect to pre-retirement withdrawals, members may only withdraw the amount in sub-account B from each PRS provider once a year. The first pre-retirement withdrawal can only be requested by a member one year after making the first contribution to any fund under the scheme whether the contribution is by an employer or member.

While pre-retirement withdrawal may be made for any reason, a tax penalty of 8% on the withdrawal amount will be deducted by the PRS providers before the balance is credited to the member’s account.

Although lump sum withdrawals are permitted, members are encouraged to retain their savings for continuous investment under the respective schemes.

14. What happens when a member dies?

When a member dies, their savings will be paid to the executor, administrator or named beneficiary as the case may be. The schemes’ trustees will be required to release all or part of the balance where required pursuant to a grant of probate or letters of administration.