FAQ Private Retirement Scheme

FAQs on PRS

1. What is a private retirement scheme?

• A private retirement scheme (PRS) is a voluntary long-term investment scheme designed to help individuals accumulate savings for retirement. It complements the mandatory contributions made to EPF.
• 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?

• The introduction of the private retirement scheme framework resulted from recommendations made by the Securities Commission Malaysia (SC) to the Government to accelerate development of the private pension industry in Malaysia.
• Private retirement schemes 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 (Private Retirement Scheme Industry) Regulations 2012 (the PRS Regulations) and the Guidelines on Private Retirement Schemes (PRS Guidelines) 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 private retirement scheme (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:
• Private Retirement Scheme Administrator;
• Private Retirement Scheme Providers (PRS Provider);
• Private Retirement Schemes (PRS);
• Trustee to Private Retirement Schemes (Scheme Trustee); and
• Trustee to Employer-Sponsored Retirement Schemes (Employer Trustee).

• The PRS Regulations establish the duties and responsibilities of a PRS Provider and Scheme Trustee, as well as requirements on approval of the PRS Scheme, 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 environment that would safeguard the interests of contributors to PRS.

4. What are the key components of the PRS framework?

• 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 independent Scheme Trustees under a trust.
• The law also caters for the establishment of a Private Pension Administrator which would be responsible for the operationalisation 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 Provider, Private Pension Administrator, Scheme Trustee and PRS distributors require approval of the SC to operate and will be subject to on-going regulatory requirements and supervision.
• The PRS will operate as a trust structure with the Scheme Trustee ensuring the assets of the funds are segregated from the PRS Provider. The funds under the PRS will be professionally managed by the PRS Providers 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 private retirement scheme).
• 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 is 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 Administrator (PPA)?

• The PPA refers to a private retirement scheme administrator as defined under section 139A of the CMSA. The duties and responsibilities 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/awareness on PRS.

7. How do I (an individual) join PRS?

• To make contributions to PRS, just contact the PRS Provider 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 Provider or from the website of the PPA once the Schemes are offered to the public (www.ppa.my).

• Proof of identification is required at account opening:
• Identification card / Police / 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 contribution on behalf of its employees?

• Where an employer seeks to contribute to 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 fund(s) under the Scheme offered by the relevant PRS Provider.
• Where employees do not make a fund selection, the employer 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 as well as the 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 many 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 to 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 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 advertisements.

11. When can I start contributing to 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 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 website of the PPA.

12. How do members keep track of their PRS investments?

• Members will be able to check online via the PPA website or contact the relevant PRS Provider.
• Members will receive statements on a periodic basis from 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 circumstances:
• After the day the member reaches retirement age, which is currently 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 Scheme Trustees will be required to release all or part of the balance where required pursuant to a grant of probate or letters of administration