Malaysia is set to both transition into a high-income economy and become an aging society by 2030, according to the World Bank. As the nation’s economy evolves and matures, more people are also choosing to venture into the gig economy or opt for the path of self-employment. How well-prepared we are for retirement will determine how well we cope with future work and demographic trends.
Whether you are a self-employed person looking to design a retirement plan that fits your lifestyle, a civil servant looking to supplement your government pension scheme or an employee in the private sector looking to complement your mandatory scheme contributions, saving for retirement is an important habit to inculcate as early as possible in order to lead fulfilling, healthy and purposeful lives during your golden years.
According to the Department of Statistics Malaysia, the average Malaysian today lives until 75 years old. This makes it necessary for us to accumulate sufficient savings in order to maintain our desired standard of living for at least 15 years beyond the statutory minimum retirement age of 60.
While there are no “magic formulas” for how much one should save, the general rule of thumb is to set aside one-third (1/3) of our monthly earnings while we are working in order to accrue a nest egg as replacement income to sustain our post-working years. The Private Retirement Schemes (PRS) was designed with this purpose in mind as a voluntary scheme specifically to help Malaysians accumulate savings over the long term.
At PPA, we are encouraged to see more and more Malaysians, especially among the youth, taking their first steps to save in PRS, which augurs well for the financial security of their retirement well-being. Contributions in PRS are eligible for a personal tax relief of up to RM3,000 per year, and employers who contribute in PRS on behalf of their employees are eligible to claim a tax deduction of up to 7% above the statutory rates.
As the central administrator for PRS, PPA will continue to protect the interests of PRS Members and grow the PRS industry alongside our eight (8) PRS Providers and Securities Commission Malaysia (SC). We are grateful for SC’s role in establishing a robust regulatory framework for the PRS industry and commend its unwavering commitment to enhance and expand the breadth and depth of PRS offerings and its related services.
Despite an unprecedented turn of events and a challenging start to the decade, the PRS industry has proven resilient as the avenue of choice for Malaysians to build their retirement savings. Up to Dec 2020, total PRS Members has on average increased by 28.8% per year, while its total net asset value experienced an annualised growth of 42.5%. This achievement is a strong testament of the confidence placed in PRS as a well-structured and regulated avenue for Malaysians to save for their retirement.
PPA will remain focused on our strategic objective of elevating the retirement savings landscape in Malaysia. Together with our partners in the Financial Education Network (FEN), we will also align our efforts and initiatives with the national agenda to improve financial literacy among all Malaysians.
Forging ahead, PPA will endeavour to develop and introduce more value-added services, especially through digitalisation and financial technology, to not only increase the awareness of early retirement planning and the appeal of PRS among the younger generation, but also widen its accessibility as an additional avenue for all socio-economic segments of society to save more for their retirement.
Mr Ou Shian Waei