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The Private Retirement Scheme (PRS) is a retirement savings plan launched by the Malaysian government to encourage citizens to save for their retirement through specific funds. The plan itself may not be particularly attractive, but its biggest draw is that investments made in PRS can qualify for annual tax rebate of up to RM3000. This article mainly focuses on discussing PRS from tax rebate perspective.
What is PRS
The Private Retirement Scheme (PRS) is a voluntary long-term savings and investment plan introduced by the Malaysian government to help individuals prepare for retirement.
Fund selection under PRS
PRS is regulated by the Securities Commission Malaysia. Private companies, known as PRS providers, offer PRS plans, most of which are traditional fund companies such as Public Mutual. More information on PRS, including companies that offer PRS funds, can be found on the Private Pension Administration (PPA) website.
It is important to note that not all funds under these companies are considered PRS funds. PRS funds typically have the term “PRS” in their name, such as Public Mutual PRS Equity Fund and AmPRS Asia Pacific REITs.
Difference between KWSP/EPF vs PRS
- EPF is mandatory, PRS is voluntary
- EPF offers stable returns, while PRS offers more flexible investment options, but at a higher risk.
Advantage and disadvantage of PRS
Advantages of PRS:
- Taxable income can be reduced by up to RM3000.
Disadvantages of PRS:
- Similar to EPF, funds can only be withdrawn at age 55 for retirement purposes, or for housing or medical purposes.
- Based on past performance, PRS funds have not performed particularly well
PRS withdrawal
Similar to EPF, the funds invested in PRS are divided into two parts: Account A (70%) and Account B (30%). Account A can only be withdrawn at retirement age (currently 55 years old), while Account B allows for one withdrawal per year.
The conditions for withdrawing from PRS Account B are as follows:
- Housing purpose, no extra charges
- Medial purpose, no extra charges
- Other purposes, 8% charge
PRS Tax Relief & Saving
The amount of income tax that can be saved through PRS depends on your income level and the applicable tax rate. The table below shows the income tax savings at various tax rates, considering RM3,000 PRS purchase.
Considering the withdrawal restrictions and investment risks of PRS, in my personal opinion, the benefits of investing in PRS are not significant unless your income tax rate is 21% or higher.
| Income tax bracket | PRS tax saving |
| 1% | RM30 |
| 3% | RM90 |
| 8% | RM240 |
| 13% | RM390 |
| 21% | RM630 |
| 24% | RM720 |
| 24.5% | RM735 |
| 25% | RM750 |
| 26% | RM780 |
| 28% | RM840 |
| 30% | RM900 |
PRS tax relief until when
Subject to changes announced by government, currently PRS tax relief is available until year 2025.
How to invest in PRS
- Choose the desired PRS provider and contact them.
- Select the fund you want to invest in and purchase it on the respective company’s fund platform. The contact person from the fund company will assist in opening a PPA account.
Personally, I purchased through Fundsupermart, which offers the advantage of choosing from multiple fund companies. Contact Fundsupermart, and they can also assist in opening a PPA account.
Performance and return of PRS funds
You can check the PPA website to review the past performance of PRS funds. As mentioned earlier, the fund performance has not been particularly good based on past records, so it may not be worth it if the taxable income saved is not high enough.
End
In summary, compared to the SSPN tax deduction shared before, PRS tax deduction is relatively less attractive. However, for those who want to reduce their taxable income and have additional capitals, it is still an option to consider. For more information on PRS, you can refer to the PPA website.