Proper Retirement Planning
Retirement… It is a word that most cannot associate themselves with. As we grow older, this is a concern that grows and becomes more pertinent. For millions of Malaysians, the dream is to accumulate enough savings in order to have the freedom to enjoy a f
According to Dato’ Steve Ong, the word “retirement” is not well accepted by people as many are concerned being financially secure in their old age in the face of higher standards of living and increasing medical costs. This article educates us about what is the Private Retirement Scheme (PRS) is all about, what one should expect out of it and how one should approach such schemes while planning towards retirement.
However, as people live longer, living costs increase and medical costs become more costly; more and more Malaysians are finding that the savings accumulated after years of hard work are insufficient to see them through their retirement. Financial security has become a major concern for many, as they strive to attain a comfortable retirement target to remain financial independent. In view of this situation, as part of the government’s Economic Transformation Programme (ETP) the Securities Commission Malaysia (SC) has been charged to establish the Private Retirement Schemes (PRS) as the third pillar of Malaysia’s pension framework. PRS forms 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 complements Malaysia’s mandatory retirement savings schemes and are voluntary long-term investment schemes designed to enhance adequacy of savings for retirement. While many insurance companies have rolled out various retirement products aimed at helping individuals plan for retirement, these are mostly bundled products, comprising of a combination of insurance coverage, savings or investments. For PRS, the focus is primarily on growing an individual’s contribution in their chosen fund. This means that the money will be put to work with no other objective than to build funds for retirement.
Retirement Planning with PRS
As the central administrator for the PRS, one of the Private Pension Administrator’s (PPA) main function is to create awareness and educate the public on how to mitigate the problems arising from inadequate, insufficient funds (due to longer life expectancy) and inflation in order to be free from old age poverty. PRS is a solution that is designed to help Malaysians to save, invest and enjoy their retirement. It is not about sacrificing current spending but it is about setting aside a designated fund for future spending. What sets PRS apart from other investment tools is that it is a voluntary long-term investment scheme designed to help individuals accumulate savings for retirement, designated only for retirement and withdrawal only when you retire. It takes time to educate. We cannot afford to stop educating the public especially the working population on the importance of having adequate funds to enjoy retirement. The World Bank statistic shows that in order to live comfortably without compromising the standard of living or downgrading lifestyle, a person needs twothirds of last drawn salary as replacement income when retire. The beauty of the PRS is it is flexible to choose or switch providers and funds based on risk appetite and anticipated returns. There are also default funds designed based on age groups for contributors who do not want to be involved in the process of fund choosing.
It takes time to educate. We cannot afford to stop educating the public especially the working population on the importance of having adequate funds to enjoy retirement. For those who are below 40, with the objective of growing your funds and make the money work harder for you, you can opt for aggressive funds with higher risk. If you are in your 40s to 50s, the fund should be helping you to gain a certain percentage of growth while generating steady income at moderate risk. Members who are above 50 are advised to be more conservative in their risk-taking and seek a fund which can offer a return that beats the inflation rate. If you are looking for diversification to different region of investments, asset classes and asset allocation, by all means talk to the PRS Providers. They will help cater to your retirement needs and advise which fund is suitable for you. PRS is voluntary and as such, it does not limit for your contribution to a single provider or a single fund. However, members are encouraged to take advantage the benefit of “dollar cost averaging” in order to reduce market risk through systematic and regular contributions at predetermined intervals (monthly) and set amounts. In line with our motto of “We are here for you”, PPA offers PRS members central administration of their consolidated PRS account. Through PPA online portal, members can log in to their account to monitor their investments with all Providers as well as check the performance of all PRS funds. This service is available 24/7. Last but not least, a tax relief of up to RM3,000 is given by Inland Revenue Board to encourage voluntary contributions in PRS. While the tax incentive is a sweetener to motivate PRS contributions, Malaysians need to realise the bigger issue which is the impending income replacement problem of inadequate and insufficient funds for retirement. What the public need to be aware of is how much they need to save and invest to replace two-thirds of their last drawn income before they retire. Otherwise, they may not be able to continue living their lifestyle that they have been accustomed to. Remember PRS is a dedicated and disciplined retirement funding solution. PRS is not only to meet the public’s need to accumulate funds for retirement but also to meet the needs of retirement income planning. PRS also caters for the retiree market where individuals have the need to convert their long retirement savings to an income stream that will provide monthly income for the duration of their retirement years. Since the first PRS fund was launched in November last year, the response towards PRS has been encouraging. We have achieved widespread awareness since February this year in which there are people investing in PRS in every state of the country. I’m glad to say that more Malaysians now are aware that they need to better prepare for their retirement and know how to plan well to achieve their dream retirement.
TAKE CONTROL OF YOUR OWN RETIREMENT!