PRS (Part 6): Private Retirement Schemes in Malaysia – The Benefits
In iMoney’s sixth and final part of our PRS Series, we’ve finally arrived at the good stuff, namely: the immense benefits of contributing to PRS in spite of the risks.
Works Like a Second EPF
The major goal of PRS is to help individuals save for their retirement, much like the Employees Provident Fund (EPF). That in itself is a strong motivation for you to participate, as many Malaysians simply do not have adequate amounts in their EPF accounts to survive for long after retirement.
The main feature of a PRS plan is its somewhat rigid structure, which discourages you from using your PRS contributions until the time is right. As illustrated in Part 3 of our PRS Series, you can only withdraw from your sub account B (which holds 30% of the total amount you contribute) once a year, thus forcing you to save the other 70% until your retirement. In addition to that, you are subject to an 8% tax penalty over the early withdrawal amount, so you’d really want to think twice before touching your PRS account.
In an effort to promote public savings with PRS plans, the Malaysian Government is providing a tax relief of up to RM3,000 per annum on PRS contributions until Year 2022. Additionally, incomes generated via PRS are also exempted from tax.
Compared to the EPF, PRS offers much greater flexibility in that there is no fixed amount or intervals of contribution required. Though PRS providers may set a minimum or maximum limit on their PRS plans, you are generally free to contribute whatever you can afford within those limits. Also, PRS allows you to switch between plans and providers once a year subject to conditions imposed by the providers; which gives you a certain liberty to turn to more promising plans should the need arise.
In the Private Pensioner Administrator (PPA), PRS contributors have a single entity / hub to manage all their PRS-related needs. Because PPS essentially keeps track of all PRS providers and contributors, it is able to control the communications process more effectively and generally protect the interests of all parties better.
Need a refresher? why not go back to Part 1 of our PRS Series and learn about PRS all over again.