Private Retirement Scheme vs Regular Savings Plan

Private Retirement Scheme (PRS) was soft launched by the Prime Minister in July as an  additional financial tool to supplement our sole retirement funds, EPF. After the initial hoo-hah, the hype about PRS has cooled down with not much information on the details of the PRS available to the public. However, you can refer to this booklet for some basic info and Q & A on PRS.

Since we've got this simple booklet to explain everything about PRS, I'm not going to dwelve in details about PRS. What I'm interested in discussing about is the comparison between PRS and Regular Savings Plan (RSP). Typically for a PRS investment, we are talking about regular top-ups to the retirement funds with your spare cash, be it on monthly/quarterly/one-off basis. This is basically the same principle as RSP.

Now, as an investor, if you already have active RSP with one of the fund houses or via online unit trust distributors, such as Fundsupermart, you might be wondering, should i cancel my RSP and invest in PRS? As a quick recap, let's look at the advantages and disadvantages of investing in PRS:

Major advantages of PRS:

• Maximum tax relief of RM3,000 per annum, up to 10 years - This is probably the single deciding factor on whether to invest in PRS. If you are currently paying tax at 26% level, you can cut down tax payment by RM 690 per annum. This tax relief threshold could potentially be revised higher to encouraged investments into PRS in the future, which translates to even more tax savings.
• Lower sales charge for funds - One key feature in PRS is the low sales charge of 0 - 3% for investment into PRS funds, as compared to typical sales charge of 5 - 6.5% for normal investments with fund houses.

Major disadvantages of PRS:

• Tax penalty of 8% for pre-mature withdrawal - If you plan to withdraw from Account B, you will be taxed 8% of the withdrawal amount.
• Inflexible - Due to its objective as supplementary retirement fund, investment into PRS funds are restricted in terms of the choices of funds/fund houses and withdrawal frequency.
• Unknown performance track record - PRS funds are likely to be either new funds or rebranded funds from existing fund houses. These funds have no performance track record for the public to analyze on.

In my opinion, if you are already investing in RSP for long term, i guess it's logical to switch over to PRS IF the PRS funds available for investment is already one of your RSP funds AND for the tax relief benefits, even though it's only for 10 years.

As mentioned, details about PRS are still sketchy at best. I wonder why it took so long to take off. Malaysia is blessed with liquidity now, and given the right promotion and legal benefits, PRS might well be one of the investment tools at the consumers' disposal in the near future.

So, I'll relook into this article again once PRS is generally available to the public...stay tuned for Part II!