How come after I buy PRS, only come out this annuity plan. KANASAI.
Posted on 10 December 2012 - 05:38am
PETALING JAYA (Dec 10, 2012): The highly anticipated Private Retirement Scheme (PRS) may already be facing competition in the local retirement market -- and some of its eight approved PRS providers haven't even released their funds to the public yet.
Hwang Investment Management Bhd (HwangIM) unveiled the first PRS funds on Oct 31 this year, and since then other PRS providers including Manulife Asset Management Services Bhd and CIMB-Principal Asset Management Bhd have launched their own range of retirement funds, offering investors more choice over their pension.
The PRS -- which is to supplement the Employees Provident Fund (EPF) and provides for the self-employed who are not included in the EPF -- typically invests in unit trusts and does not have capital guarantees unlike the EPF which guarantees a return of at least 2.5% annually.
However, on Nov 19, Great Eastern Life Assurance (Malaysia) Bhd became the first life insurance company to launch an annuity plan, and its features look an awful lot like the PRS funds except that policyholders are guaranteed annual income every year for a limited period.
And its offering has some PRS players crying foul, saying it's not a level playing field.
Their bone of contention is while both the PRS and annuity plan qualify for the tax relief of RM3,000 as announced in Budget 2012 for the period of 2012 till 2021, PRS funds do not have capital guarantees unlike annuity plans which may prove more attractive for investors.
A PRS distributor who didn't want to be named said customers may be mislead with the terms "guaranteed" and "retirement".
"For insurance products that are "guaranteed", the insurance provider is also both the debtor (they pay the policy-holders) and also the guarantor (guaranteeing the returns). How can a debtor also be the guarantor?
"In law, the guarantor must be the third party other than the creditor and debtor. Perhaps it is not a real guarantee or they are using the term loosely," he told SunBiz.
"Investors are lay people. If they do not know about the law, they may think it (guaranteed yearly income retirement plan) is more attractive due to the words "guarantee" and "retirement".
"What I'm concerned about is the potential to mislead people and Bank Negara Malaysia (BNM) should be more mindful of this," he said.
Another major issue presented by insurers are that they are regulated by BNM and are not subject to the same rule as PRS providers.
"PRS providers are regulated by the Securities Commission (SC) and have to adhere to stricter rules than those that govern insurers. For example, similar to unit trust players, PRS providers are required to provide a prospectus or disclosure document before a fund is launched," said the PRS distributor.
"On the other hand, investment-linked insurance products are regulated by BNM and (insurance) providers are not required to prepare any prospectus or disclosure documents. The clients get insurance policies instead," he added.
HwangIM chief product officer Steve Lim said for a financial company to be able to guarantee a plan, they will have long lock-in periods for investors of between five to 10 years where early withdrawals are subject to hefty penalties.
"It is quite difficult to guarantee returns in a short period. For PRS, clients can withdraw 30% a year after their first contribution with an 8% tax penalty."
Lim said PRS clients are also not subject to any lock-in period and are allowed to switch to other funds or PRS providers if they feel that the current fund or provider is not performing to their expectations.
He added that clients have not been deterred by the no capital guarantee of PRS funds, and that HwangIM is on track to achieve 1,000 PRS accounts by year-end.
"If an investor has a very low risk appetite, we would advise him or her to look at other options instead. For us, the last thing we want to do is sell and end up with unhappy customers because they do not understand the products," said Lim.
Manulife Asset Management Services CEO Edward Ooi said the core lies in educating and building awareness so that Malaysians understand the importance of supplementing their retirement savings, be it with PRS, annuity plans or any other options.
"Education is important to ensure Malaysians are aware to begin their retirement savings with diversified options that suit their needs.
"PRS offers the flexibility where consumers have the option to contribute to their account as and when they wish to (subject to the minimum top up amount) and are not subject to a fixed premium amount and payment term," he said.