Private Retirement Scheme in Malaysia

What is a Private Retirement Scheme (PRS)?

The Private Retirement Scheme in Malaysia was launched in approximately 4 years ago back in mid 2012 as a supplement to the Employee’s Provident Fund (EPF) because it was found that most Malaysians relied solely on their EPF for retirement which was severely insufficient. The PRS is a defined contribution scheme which in simple terms – you decide how much you contribute and is regulated by the Securities Commission of Malaysia. The entity that is administrating and handling PRS is the Private Pension Administrator (PPA), every Malaysian interested in contributing to PRS is required to create an account with them (more on this later).

Private Retirement Scheme (PRS)

Photo source: PPA

Benefits of PRS

So, why contribute to PRS?

PRS Tax Relief

The Malaysian government, in a bid to encourage everyone to fund their retirement provided a few benefits in the form of tax reliefs and a PRS youth incentive. Individual who contribute to a PRS can enjoy up to RM3,000 tax relief per year of assessment. Many confuse this as a RM3,000 saved every year when you contribute.

This is not the case, instead, think of the RM3,000 as the cap, if you invest RM3,001 in a PRS, you only get the relief of up to RM3,000. So, potentially an individual taxed at the highest rate can save up to RM780 per year in taxes if he/she contributed to a PRS. This however makes contributing more than RM3,000 a year unnecessary.

As per the table below, you will notice that the maximum savings an individual can get is RM780, if he is in the highest taxable bracket and is taxed at 26%.

PRS Tax Relief Table

PRS Youth Incentive

The PRS Youth Incentive is an initiative by the Malaysian government to encourage young Malaysians to start saving and investing for retirement. A one-off incentive of RM500 will be contributed by the Government to Malaysian individuals who qualify for the incentive.

Who is eligible?

  • Malaysian citizens only;
  • Aged between 20-30 years;
  • A minimum gross investment amount of RM1,000 must be accumulated in a single PRS fund of a single PRS provider within a calendar year, between 2014 till 2018

With the above mentioned incentives, I myself have contributed RM3,000 every year to a Private Retirement Scheme through Fundsupermart. I chose them because prior to PRS, I’ve been investing in Unit Trusts and Mutual Funds through them. Everything is done online and is simple to follow. Some of the forms will require your signature and thus will be mailed/couriered to you. You may sign up for an account here and just follow their instructions.

I chose to contribute to the PRS funds as seen below:

PRS Fundsupermart

There are a total of 8 PRS Providers:

  • Affin Hwang Asset Management Berhad
  • AIA Pension and Asset Management Sdn. Bhd.
  • AmInvestment Services Berhad
  • CIMB-Principal Asset Management Berhad
  • Kenanga Investors Berhad
  • Manulife Asset Management Services Berhad
  • Public Mutual Berhad
  • RHB Asset Management Sdn. Bhd.

The Disadvantages of a PRS

Yes, I invested in a PRS and the tax relief as well as the RM500 youth incentive wasn’t too bad. However, a Private Retirement Scheme is in essence a Unit Trust / Mutual Fund, and you know how much I hate them here in Malaysia as I’ve mentioned in my previous post Fundsupermart and Unit Trusts in Malaysia. The same ridiculous fees are charged by the providers regardless if you make a profit or a loss. Notice that my total profit averages to a measly 3.15% after 2 whole years, of course this is not including the tax relief afforded by the government.

Furthermore, your money is locked in until you reach the age of 55. Early withdrawal (with tax penalties) is allowed under some circumstances which are all specified at the PPA’s website.

Conclusion

All that being said, I will still continue to contribute RM3,000 each year solely because of the tax relief which I view as a guaranteed return provided by Putrajaya. I am in no way put off by the long wait till I’m 55 because I have surplus savings. However, the same cannot be said for my fellow Malaysians out there who are struggling to make ends meet.

Will you continue to contributed to a PRS this year? Have you taken advantage of the tax incentives provided by our Government?

Thank you for reading.

IGB REIT – Annual Report 2015

What is a REIT?

So first and foremost, what is a Real Estate Investment Trust (REIT)? A REIT is a company that owns, and in most cases, operates income-producing real estate. They are listed on the KLSE and its shares are open to the public to purchase.  Learn more about them here in my Complete Guide to REITs in Malaysia.

Now, on to one of my favorite REITs – IGB REIT.

IGB REIT

IGB REIT Annual Report

I was awaiting the arrival of the dividend voucher from IGB REIT when to my surprise, it came together with its annual report in the form of a CD. Personally, I like how companies are mailing their annual reports in a CD instead of the old days when they printed thick copies of the reports and mailed those to every single shareholder.

Before we go into the details, you may download and open IGB REIT’s annual report here: IGBReit AR15

For the benefit of those who don’t know, IGB REIT’s property portfolio consists of Mid Valley Megamall and The Gardens Mall in the Klang Valley. Their main shareholders are IGB Corporation Berhad and Goldis Berhad whose main shareholders are the family of IGB Corp’s co-founder the late Datuk Tan Kim Yeow.

I will attempt to brief everyone on some of the more significant details of IGB REIT.

Balance Sheet

Dear shareholders of IGB REIT, these are yours.

IGB REIT The Gardens Mall

Photo Source: thisismetrixit.blogspot.com

IGB REIT Mid Valley Megamall

Photo Source: mapio.net

There were no significant changes in the REIT’s assets and liabilities, value of the company’s investment properties stood at RM4.9 billion. Mid Valley Megamall is valued at RM3.61 billion and The Gardens Mall at RM1.28 billion by Henry Butcher as at 31 December 2015.

Cashflow

A Real Estate Investment Trust’s (REIT) main source of income comes from rentals and the company’s gross rental income increased by 7% in 2015 to RM380 million a year. I particularly liked that IGB REIT also managed to not only keep expenses low, they were able to reduce it by almost RM3 million a year.

However, a lower net profit was declared for 2015 mainly because there was no changes in the fair value of the REIT’s properties. Generally most properties held by REITs would have an increase in value every year, I am not concerned with this aspect of IGB REIT because fair value of properties are paper gains, the true value of a REIT comes from its rental income.

Apart from rental income, I’d like to bring your attention to their Other Income section mainly car park, advertising an kiosk rental. The REIT is rakin in RM44 million a year in parking fees alone, RM6 million for advertisements and a cool RM23 million from renting out kiosk booths. All of which have increased compared to 2014.

My Holdings

IGB REIT has been in my PORTFOLIO since July 2015 with my gross investment at RM1.3152. I’ve been adding to my position when the price was right. As of today (3/3/16), the market price is RM1.54, giving me an unrealized capital gain of 16.33%. I have also received dividend income from IGB REIT recently amounting to RM766.08. Total gains including dividends received stands at 20.93%.

At the current price, dividend yield for the REIT is still above 5%, I will consider disposing off some of my shares in IGB REIT when the yield dips below the 5% mark and will top up on the REIT depending on their next quarterly results.

Do you own any REITs in your investment portfolio? 

Thanks for reading.