All of us aim to have enough money saved up for retirement.
However, almost six in 10 Malaysians in the corporate sector have not started preparing for their retirement, according to a 2020 research by Private Pension Administrator Malaysia (PPA), the central administrator for the Private Retirement Schemes (PRS).
With the latest data from the Statistics Department revealing that the average life expectancy of Malaysians is 75 years, adequate savings are required to protect against inflation and to sustain our desired lifestyle for a minimum of 15 years after retirement.
The good news is the same PPA study also found that 56 per cent of companies say they can do more to prepare their employees for retirement.
So, whether you are an employer or an employee settling into the rhythms of the new norm in 2021, here are five reasons why a savings scheme like PRS should be included at the workplace.
1. Salary Deduction to Automate Retirement Savings
Behavioural psychology tells us that resisting temptation, delaying gratification and staying disciplined on a long-term goal like saving for retirement can be challenging.
Therefore, making a portion of our income out of reach each time we get our salaries encourages the unconscious habit of saving and indirectly keeps us disciplined towards our goal.
As a caring employer, one of the best ways to make it easier for employees to save more and regularly for their retirement with PRS is through salary deduction.
If they already have a PRS account, let each employee decide how much they would like to set aside each time they receive their salaries by facilitating the simple administration of debiting it into their PRS accounts.
Automating our retirement savings helps prevent the possibility of overspending and ensures our future nest egg gets prioritised.
What matters for a long-term goal like retirement saving is consistency, even if it is just RM50 a month.
2. PRS Tax Relief for Employees
The PRS Tax Relief, which was recently extended by the government until 2025, is the most straightforward benefit that employees will enjoy by having PRS in the workplace.
By just making the option of saving via salary deduction available, it nudges employees to open a PRS account to start taking advantage of the PRS Tax Relief of up to RM3,000 per year for individual contribution.
All the contributions made via salary deduction are eligible for this tax relief, and the tax savings could be as much as RM900 depending on which tax bracket an individual falls into for the assessment year 2021. When added on top of the PRS contributions employees are already making, this tax relief can further boost one’s retirement savings over the long term.
3. Tax Optimisation for Employers
PPA’s research also found that only one-fifth of companies surveyed currently offer retirement contributions above the statutory rate.
With PRS, companies can contribute additionally in a tax advantageous way by awarding PRS contributions on top of the mandatory scheme’s statutory rate.
This is because employers who contribute in PRS on behalf of their employees are eligible to claim a tax deduction of up to seven per cent above the statutory rates.
In terms of talent management, PRS can be offered as a matching contribution to encourage employees to save, a bonus for top performing achievers or as an incentive vested over several years to reward loyal employees.
This investment in human capital would also attract talent, increase retention of employees and reduce the cost of turnover.
Remuneration towards an employee’s PRS helps them accumulate more retirement savings while providing additional tax deductions to the company. It’s a win-win situation.
4. Diversification and Flexibility in Retirement Savings
One good reason to offer PRS to supplement the mandatory scheme with a retirement savings plan is the diversification it offers to employees who are already contributing to the mandatory scheme.
The eight PRS Providers collectively offer a choice of 57 PRS funds spanning both conventional and Islamic investments in properties, bonds as well as local and foreign equities.
Financially-savvy individuals are welcome to choose a PRS fund according to their retirement needs, goals and risk appetites.
Employees new to investing may opt for the Age-Based Default Option, which is a unique feature of PRS that aligns a PRS fund to your age group along the Auto-Glide Path.
On this path, your savings are automatically moved from a higher risk growth fund when you are young and in the wealth accumulation phase to a lower risk conservative fund when retirement approaches and wealth preservation takes precedence.
As a voluntary scheme regulated by Securities Commission Malaysia, the PRS industry is resilient despite a challenging 2020.
Below is a summary of PRS fund performance according to categories:
Source: Morningstar – as of 31 Dec 2020
5. Value-Added Services from PPA and 8 PRS Providers
Retirement planning is an essential pillar of financial literacy.
Your company can take the next step and help employees plan for their financial future by leveraging on PPA as the central administrator for the PRS and the combined expertise of eight PRS Providers in offering retirement planning solutions.
Start by inviting PPA to deliver a personalised financial education presentation at your company to introduce the essentials of money management and retirement planning.
All you need to do is fill up PPA’s online appointment form or inform the relevant decision maker at your company to do so, and someone from PPA will be in touch to schedule a presentation.
This can be done virtually in compliance with social distancing guidelines.
Companies can then arrange PRS account enrolments for employees by choosing one or more PRS Providers to work with.
Enrolling this way via the Corporate PRS channel may allow PRS Providers to offer further customisation to suit a company’s needs. Once employees are enrolled as PRS Members, PPA will provide lifetime account management and online access for each member to get a consolidated view of all their PRS savings.
Additionally, PRS Members also get to enjoy these value-added services to manage their retirement savings along the way:
- Choice of switching PRS funds offered by the same PRS Provider or to transfer their PRS savings to another PRS Provider;
- Flexibility to make pre-retirement withdrawals from sub-account B, which holds 30 per cent of their savings, should the need arises – such as for the purposes of housing and healthcare;
- Straightforward process to make a nomination to share their PRS savings with their loved ones.
When you’re ready to take the next step, know that you won’t be alone throughout this process.
Set your company and employees apart and stand out with PRS.
This article first appeared on Malay Mail.