How’s your relationship with the Malaysian government?
If you’re like most people I know, it’s probably not very good. Prices everywhere are going up. The goods and service tax is imminent. And we’re still really sore about the horrendous wastage we see in the yearly Auditor-General’s report. That’s our freaking money, man!
What if I told you there’s a way to get some of your hard-earned money back?
It’s five hundred bucks. It’s free. And it’s foolproof.
Private Retirement Schemes
First, allow me introduce you to Private Retirement Schemes (PRS).
If you haven’t heard of them, PRS funds were launched because most Malaysians don’t have enough savings in their EPF when they retire. Here’s a statistic from last year: Most 54-year old contributors have less than RM50,000 in their EPF accounts. Which is a huge problem. RM 50,000 doesn’t last very long. It’s only RM 4,000 per month for a year. But it’s supposed to last you for about 20 years till you’re gone.
So the government launched PRS to encourage Malaysians to voluntarily contribute towards their retirement savings.
PRS funds mimic the function of the EPF (KWSP), but they are instead managed by financial institutions approved by the government. You get to choose which funds you want to invest in, with whichever company you trust. The list of 8 approved PRS providers is below:
- Affin Hwang Asset Management
- AIA Pension and Asset Management
- AmInvestment Management
- CIMB-Principal Asset Management
- Kenanga Investors
- Manulife Asset Management Services
- RHB Asset Management
- Public Mutual
How Are PRS More Beneficial Than Normal Mutual Funds?
So why would you invest in a PRS instead of a normal mutual fund?
Glad you asked. There are several key differences.
The first difference is that a PRS is meant to act as a retirement fund. It’s not a short term place to park your cash. Whatever you throw in there stays till you’re 55. The maximum you can take out before age 55 is 30% of your balance — but you’ll incur an 8% tax penalty.
Now you might think that this is a horrible thing: “I invest money but I don’t get to touch it till I’m 55?!” Well, it might be good for you — especially if you’re the type that can’t help burning every last cent available to you. Like me.
The second difference is that there’s a great tax incentive for investing in PRS.
Via the Private Pension Administrator website:
Tax relief of up to RM3,000 per annum will be applied on taxable income, for individual contributions made to the PRS for the first 10 years from assessment year 2012.
So whatever money you invest in PRS (up to 3K) is tax-free.
Assuming you pay an effective tax rate of 15%, investing RM 3,000 in PRS just saved you RM 450 of tax!
Wait, You Promised Me RM 500…
It gets even better. The extremely generous Malaysian Government will give you a once-off RM 500 gift subject to the following conditions:
- You invest at least RM 1,000 in a PRS (either in a lump sum, or on a staggered basis — within one calendar year)
- You’re aged between 20 and 30. (If you’re 30 like me you’re still eligible. But deal’s off once you’re 31)
- You’re Malaysian
- You invest in the 5 year promotion window of 2014 – 2018
The only “disadvantage” is that the RM 500 isn’t given as cash, but credited into the fund you’ve invested in. Which really isn’t a bad thing. You won’t get to touch it until you’re 55, but hey, it’s still tax-free money. And it’s free. I’m taking it.
Get Started with PRS
To start purchasing PRS funds, you could individually contact the PRS providers listed above. But there’s a better way — head over to Fundsupermart.com for the easiest and cheapest way to start purchasing funds. All the funds sold there have a 0% sales charge. That means you don’t lose any money upfront — which usually happens when you buy funds via other means.
I think the combination of tax savings and once-off incentive of RM 500 is an unbeatable investment. What do you think? Are you in?
The original version of this article first appeared at Emmagem.
Pic Credit: Pixabay