Please note that the whole discussion here is about investment option for retirement. There are many financial goal, like planning for education, planning for vacation or wealth preservation...etc. But the goal here is to compare the newly launch PRS Scheme with other retirement planning option already available in the market.
The options I have chosen for comparison are:-
- Unit Trust Investment - direct investment with private unit trust fund managers.
- PRS Scheme - the new scheme.
- EPF Unit Trust Investment Scheme - Investing in unit trust using funds from your EPF account 1.
- EPF - the mandatory retirement saving directly deducted from your monthly salary.
- EPF Voluntary Contribution - The scheme by EPF to allow non wage earner to save for retirement.
- Annuity - insurance plan, I have not included it in the table but I will mention it briefly.
Please note that the new PRS Scheme and the EPF Unit Trust Investment Scheme are basically unit trust investment at it's core.
So here we go:-
| Direct Investment in Unit Trust | PRS Scheme (New!) | EPF Unit Trust Investment Scheme | EPF - Salary Deduction | EPF Voluntary Contribution | |
| Participation | Voluntary | Voluntary | Voluntary | Mandatory | Voluntary |
| Capital | Cash | Cash | Withdrawal From EPF Account 1 | Mandatory Salary Deduction | Cash, 60K annual limit from yr 2013 |
| Returns | Potential high return or loss | Potential high return or loss | Potential high return or loss |
Min 2.5% p/a
| |
Guarantee Returns
| No | No | No |
Min 2.5% p/a
| |
| Time Horizon | Mid to long term | locked for up to age 55 | Mid to long term |
locked for up to age 55
| |
| Withdrawal Age | Anytime | Age 55 | Anytime, but revert to EPF Account 1 while below age 55 |
Age 55
| |
| Early Withdrawal | Any time | Account B (30%) only once a year. | Any time, but will revert to EPF Account 1 while below age 55 |
Account 2 (30%)
only once a year.
| |
| Early Withdrawal PENALTIES! | Non | 8% Penalty | Non |
Non
| |
| Fund Choices | Variety of choices | Very limited choices | Limited Choices |
Not Applicable
| |
| Performance Track Record | Available | Not available (new sets of funds) | Available |
Available
| |
| Additional Government Incentives | Non | RM3000 Tax Relief | Non |
RM6000 Tax Relief
| |
| Service Charge* | 5.50% | 3.00% | 3.00% |
Non
| |
| Annual Management Fee | 1.50% | 1.50% | 1.50% |
Non
| |
| Annual Trustee Fee | 0.06% | 0.06% | 0.06% |
Non
| |
| Annual PPA Admin Fee | Non | 0.04% | Non |
Non
| |
| Annual PPA Fee | Non | RM8 | Non |
Non
| |
| PPA Acount Open Fee | Non | RM10 one time | Non |
Non
| |
| Switching Fee | RM25 | RM25 | RM25 |
Not Applicable
| |
| Switching Frequency | Unlimited | 1 switch/yr ** | Unlimited |
Not Applicable
| |
* Public Mutual's rate, other providers' charges may differ.
** Switching not allow within first year of investing.
Is PRS a better scheme?
While, I think if the PRS in its current form is better than other options, than the government won't have to give additional incentive to lure investors. The bait is the RM3000 tax relief.
How much is my real saving from the tax relief?
It depend on your own personal tax rate. See example:-
| Your Taxable Income | Tax Rate | Maximum Saving on RM3000 |
| 2,500 - 5,000 | 1% | 30 |
| 5,001 - 20,000 | 3% | 90 |
| 20,001 - 35,000 | 7% | 210 |
| 35,001 - 50,000 | 12% | 360 |
| 50,001 - 70,000 | 19% | 570 |
| 70,001 - 100,000 | 24% | 720 |
| 100,001 and above | 26% | 780 |
Is the tax saving a lot?
It depend, RM30 maybe a lot for some and RM780 may be too little to others. Important thing is, don't get distracted from your main purpose of investing in this scheme. Remember retirement? Which is more important? What you want?, a one time incentive or a scheme that will more likely meet your retirement goal?... Both!!? I wish for that too :-))
Why 8% penalty for emergency withdrawal?
It is to deter you from withdrawing early. Otherwise you will frequently have all kind of emergency withdrawal resulting in less fund for your retirement. See, how much these private companies care for your financial well being ;-) Did you cry "... but it is my money in the first place"? Shut up!, who ask you to invest?
What is EPF Voluntary Contribution?
It's a scheme design to allow non wage earner to save money in Employment Provident Fund (EPF) for their retirement. Not terribly popular either. But if you are investing for retirement and you are fan of schemes where you lose the right to access your own money, than the EPF Voluntary Contribution scheme in my opinion is a better option compare to PRS. Coincidentally, after PRS launch, the EPF Voluntary Contribution amount is limited to RM60,000 a year from year 2013. I mean why limit this one now? Guess somebody wants you to invest more in PRS instead.. ;-)
Why scheme like this are not popular?
I guess people are getting financially wiser. Choices for investment are plenty now. And people like their right and freedom to manage their own money the way they feel is best for them. So, any scheme that says Government know best, take your money and lock you out, is naturally less appealing. Worst example of this is PRS where you are also penalized for wanting use some of your own money for emergency.
So why do some people invest in such scheme?
They must be...... :-x
Okay, in what situation will this scheme worth considering?
Say I'm filthy rich..., okay maybe just rich (minus the filth), and I have park all my cash in many investments and still have some. I will take only RM3000 from the left over and put it in PRS. Also because I am very sure that I will not face any emergency serious enough, forcing me to take 30% from the PRS fund and pay 8% penalty for using my own money. Not rich?, stay away from this plan, for life is not perfect, emergencies do happen. And in those difficult times, I don't feel like letting some profit oriented company rubbing salt to the wound.
What is Annuity?
Annuity Plan is basically an insurance plan for retirement planning. You pay premium for a fixed period say 10 or 15 years before you retire, and than the plan pays you a fix return for the next 10 to 20 years or lifetime depending on the plan's structure. Interestingly, Annuity Plan also enjoy a Tax relief of RM3000. Best part is, unlike PRS Scheme, Annuity Plan gives guaranteed fixed return. So, while Annuity and PRS both entitle you a RM3000 Tax relief, Annuity gives guarantee and PRS gives no guarantee only more fees. Competition already started between Annuity and PRS as reported in the media "PRS funds vs annuity plans."
Any disadvantage of Annuity?
- First, remember, at the core, this is an insurance plan. Meaning, you are buying a plan and paying a premium for 10 to 15 years. If you miss payment/premium during this period, your policy will likely lapse, resulting in loss of premium paid so far and end of your retirement plan.
- Second, understand the correlation between Risk and Return. Higher risk higher return, lower risk lower return. Annuity with guaranteed feature is naturally a low risk low return plan. The risk to you is the return the plan pays you after 15 years may not be enough to sustain the rising cost of living at that time.
- Really guaranteed? Please read the fine print of such products and make sure you understand what they meant by guarantee. Hope the following article caution you on this- Guarantees Aren’t Always Guaranteed
Thank you :-)
