Musings about the private retirement fund

Another attempt to create feel good feeling sees the Finance Minister launching private pension fund scheme.

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PM launches new voluntary Private Retirement Scheme
By MARTIN CARVALHO & RAHIMY RAHIM

KUALA LUMPUR: The voluntary Private Retirement Scheme (PRS) was launched on Wednesday by Prime Minister Datuk Seri Najib Tun Razak that will allow employees and self employed the opportunity to save for their retirement.
To encourage savings under the scheme, individuals are granted tax relief of up to RM3,000 and employers are provided with tax deduction on contributions to the PRS on behalf of their employees above the statutory rate of 19%.
A total of 24 funds will be managed by eight Private Retirement Schemes providers which would be available to the public this September.
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A finance minister is suppose to be overseeing the compliance of its finance industry players, and not becoming their sales promoter. There is clearly a conflict of interest but just for the sake of looking nice, anything could be politicalised.
The description itself is clear, "PRIVATE" means private sector driven, not by public servants on public's money and time.
Do you ever see Obama/Margaret Thatcher/Angela Merkel or even Mahathir become spoke person for commercial product while in office?



Let's see what the Securities Commission has to say about this:

SC Approves 8 Private Retirement Scheme Providers
"The PRS providers were selected on the basis of their expertise in investment and/or pension fund management, experience in global pensions management, financial strength, governance structure and proposed business model.  The approval of the PRS providers follows the release and announcement in December last year of the SC’s “Eligibility Requirements for Private Retirement Scheme Providers” (Eligibility Guidelines) stipulating the expectations and requirements for interested and qualified parties to become PRS providers. 
The SC has also issued the Guidelines on Private Retirement Schemes (PRS), which set out regulatory and operational requirements that must be complied with by PRS providers, PRS scheme trustees and investments under PRS ventures."
The 2 paragraphs above basically says the SC has selected professional fund managers and impose some guidelines on how they operate so that the funds are managed to ensure public investors' interest are taken care of.
This is just SC doing their job, nothing to shout about. In fact with stringent Bursa Malaysia regulations and guidelines, there will always be corporate failures, fraud, companies going bust etc.
PRS is also subject to the same risk so it is not all glory and safety as the finance minister is trumpeting it.

"The SC emphasises that  Malaysia’s PRS aims to promote the welfare of retirees by developing the private pension industry, which will complement the mandatory contribution to the existing Employees Provident Fund (EPF). The new PRS framework is intended to cater for as wide a segment of the population as possible and it is important that the framework does not restrict the potential for all individuals to save and prepare for retirement."

The above means in addition to the existing EPF taken in, usually to support the Bursa Malaysia Index, more RM is needed. The number of fund contributors must be enlarged so more money can come in to prop up the Bursa Malaysia, which no longer is foreign investors' preferred choice. Since a huge chunk of EPF is locked away in loans to the Barisan Nasional's federal government (see the numbers I put up once upon a time in a previous post), money is needed more than ever to fuel the Bursa Index.

Note: KWSP/EPF contributed the bulk of Total Hutang. Source: Ministry of Finance reports

"The self-employed, for instance, who take breaks from the labour market can top up their contributions after any period of non-savings.  Another target segment are employers who may wish to make contributions above the statutory rate. The SC wishes to encourage employers by facilitating an environment that will lessen the compliance burden on these employers."


I think I get the point!


Many working Malaysians, after a roughly 20% cut in his or her gross pay for EPF, SOCSO, PCB, company sports club, study loans etc, can hardly have enough to pay for his or her housing and car installments and daily expenses. Most of them could hardly afford to spare more RM to be locked away and not available for contingency or saving enough to pay for his/her housing downpayment.


"The government has been concerned about the inadequacy of EPF savings as statistics show that 50% of contributors exhaust all of their EPF savings within five years of retirement and only 18% of active members aged 54 have adequate savings of at least RM173,000. It is also estimated that about 70% of retirees use up their EPF lump-sum withdrawals within 10 years of retirement. This coupled with increasing life expectancy and living standards demonstrates the need for voluntary retirement schemes that benefit the public."


Do not blame the general public for thisSalaries 20 or 30 years ago are smaller in absolute numbers and taking a mere quarter of it to pay for current time's cost of living fueled by crazy inflation rates is a gross mismatch. A graduate may earn RM800 in those years and this means a month's EPF is merely RM200 and in Kuala Lumpur today, it won't last 2 weeks for 2 retirees.

For most Malaysians, low salaries and high cost of living, fuelled by monopolies and corruption as well as weak ringgit as a result of weak international competitiveness due to anti-meritocracy policies caused us to have low purchase power and this is an issue that PRS cannot address.

"While maintaining its primary aim of increasing retirement savings for individuals, the PRS is also expected to serve as a growth engine to further expand the investment management industry, as set out under the second Capital Market Masterplan."
The above means locking away more of our money to develop the share market, which itself is a gambling den not for the cash-strapped.
It is better to raise the standard of pay and purchasing power of Malaysians by embracing genuine reform, eradicating wide spread corruption etc etc too well explained by so many learned but sideline bright minded Malaysians.

As for BN federal administration, there are some tax break to encourage take up rates:
To encourage savings under the scheme, individuals are granted tax relief of up to RM3,000 and employers are provided with tax deduction on contributions to the PRS on behalf of their employees above the statutory rate of 19%.
The above is nothing spectacular. Under the existing tax laws, we are already given RM7,000 personal relief for life insurance premium/approved funds contributions/private pension fund. Is the RM3,000 above in addition or part of the RM7,000?
Besides, a person whose tax bracket is, say, 20% saves tax of RM600 (or RM50 a month)  for RM3,000 that goes into the funds. Net impact if still RM2,700 deficit to him.
The private retirement fund is by no means secured, The fund managers' hefty fees (which provides comfortable and stylish living) would take cut way, then the inherent market risks in capital markets will result in losses from time to time. It also appears that there is no guarantee of profits or capital, exposing retirees to varying degree of risks as well.

All in all, why is the finance minister claiming glory with investment launches by private fund managers? We did not see Mahathir there when Public Mutual Funds was launched etc. Why does the current non-public elected prime minister carve for limelight by getting involved in frankly, day to day private sector commercial activities such as new investments in plant and machinery, launching of retirement funds etc.
While there are calls to stop politicalising education matters, GST matters, Teoh Beng Hock matters etc...so why not stop politicalizing normal commercial activities?


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