As the Private
Retirement Scheme (PRS) fever kicks into the work place, I receive general
inquiries from many on whether or not this scheme is worthwhile. As many would
already know by now, I am rather inquisitive by nature. And as much as I would
like to take the word of another as the absolute truth, I still love being
Sherlock Holmes from time to time. Granted that me being Sherlock Holmes has gotten
me into some sticky situations and tiffs in the past, all I can say is “well… it
was a learning curve and was worth every bit!”.
So snooping high
and low, I’ve managed to gather the needed information on the PRS. And to be
honest, I am trying to figure out the actual purpose as to why the Securities
Commission of Malaysia promoted this… Having done the number crunching, I can say
that whatever was spent on setting this up was a complete waste. Let me lay it
for you… For the purposes of the discussion, I shall weigh the PRS to the
retirement scheme that I design for the simple reason of it being my own. The
Private Retirement Scheme will be referred to as PRS while Ashveen’s Retirement
Scheme will be referred to as Ash-RS (I was thinking of ARS but decided
otherwise….. for obvious reasons…)
First and
foremost, let us look at the similarities:
Similarities of PRS and Ash-RS:
·
Purpose
of building long-term savings
·
Neither
capital guaranteed nor protected
o
What this
means is that even if this fund is offered by a mutual company which is a
wholly - owned subsidiary of a bank, there is no guarantee or protection on
your capital. So even if the mutual company were to go bust, the bank is not
going to step in to pay up.
·
Price is
based on a daily unit price. Meaning it would follow the market index if
invested in the capital market funds….
Sounds very much like mutual funds, don’t
it? Well, here are the differences between the PRS and Ash-RS:
Differences:
|
Feature
|
PRS
|
Ash-RS
|
|
Sales charge
|
Up to 5%
|
Up to 6.5%
|
|
Management Fee
|
Up to 3%
per annum
|
Up to 1.5%
per annum
|
|
Trustee Fee
|
Up to 0.06% per annum
|
Up to 0.08% per annum
|
|
Withdrawal Fee
|
8% per
withdrawal
|
none
|
|
Switching Fee
|
Min RM25 per switch
|
6 free switches, RM25 thereafter
|
|
Withdrawal
|
Account A:
Upon retirement
Account B
: Once a year
|
No
restriction
|
|
Private Pension Administrator (PPA) Fee
|
0.04 % per annum
|
none
|
|
Fund Types
|
Pre-designed
|
Flexible
|
The funds in the
PRS would be automatically split into two accounts called Account A (70%) and
Account B (30%). Similar to that of the EPF, Account A can be withdrawn only
upon retirement while Account B only ONCE a year with an 8% tax charged on it
(which I personally find utterly ridiculous).
Investments are to
allow a person to have financial freedom not just when they retire but also
along the journey towards retirement. A young cousin of mine once asked me,
“What is the point of saving when you don’t spend it?” As much as I would like
to disagree, I’d have to completely agree with him. The investment that one
chooses should give the flexibility to the investors on how to handle their
money. As much as forced savings is the only way to ensure that one’s
livelihood after retirement is preserved, that savings should also give
allowance for certain unavoidable expenditures along the way. After all, we
never know when an emergency may occur.
So, like I was
saying, we need adequate flexibility in investments and the PRS has failed in
that aspect. The features are really not that great either marking the launch
of it rather insignificant.
By,
Ashveen Chakravarthy Sekaran
July 8, 2013
