SC and The Upcoming Private Retirement Scheme

Managers can now apply for licences to provide products under Malaysia’s proposed private retirement scheme. The Securities Commission answers AsianInvestor's questions about how the system will work.

By Joe Marsh | 26 January 2012

In December, Malaysia’s Securities Commission published eligibility requirements for asset managers to gain a product provider licence under the country’s long-awaited private retirement scheme (PRS).

Ranjit Ajit Singh, managing director at the Securities Commission (SC), here confirms and clarifies some key points for AsianInvestor.

A feature looking at the PRS in detail will appear in the upcoming February issue of AsianInvestor magazine.

AsianInvestor: What does the SC see as the main reasons to set up a voluntary private retirement scheme? Why would (and should) people use the scheme in addition to the existing Employees Pension Fund?
Ranjit Ajit Singh: A well supervised and regulated private retirement scheme (PRS) that facilitates greater accumulation of post-retirement savings can play an important role within the overall pension landscape.

Malaysia’s PRS aims to promote the welfare of the population at retirement through a robust multi-pillar pension framework. The SC is reviewing the existing retirement landscape to make recommendations within the context of developing the private pension industry, which will complement the mandatory contribution to our existing Employees Provident Fund. 

Can you summarise the main points of the PRS? For example, rules on contributions, tax allowances, plus the main guidelines/requirements for asset managers providing products.

Private retirement schemes (PRSs) are long-term retirement schemes that contain a range of funds and are offered by approved PRS providers. The PRS framework is intended to provide flexible and convenient fund options for use, by both employers and individuals with different risk-return profiles.

Contributors will be able to control their private pension accounts in terms of investment diversification, portability between providers and flexible payout options. In this respect, the right to choose and to change investment options, as well as providers, is an integral element of the PRS framework.

The tax incentives provide personal tax relief of up to RM3,000 ($967) per annum on individual contributions to approved PRS schemes, as well as tax deductions for employers for contributions above the statutory rate, up to 19% of employees’ salaries. Tax exemption will also be provided on income received by funds within the PRS schemes.

It has been said that the SC will particularly want to see large, experienced asset managers applying to be part of the PRS. Do you have any comment on that?

Only quality private-sector entities with the required expertise in pension fund management or retail fund management entities that meet the relevant standards and requirements imposed will be approved. Eligibility requirements include capital requirements, track record, conduct history and risk management controls. 

Applicants will need to outline their business model, such as the proposed range of funds, indicative fees and the charges structure, as well as their resourcing capabilities, systems and process capabilities and member servicing.

Qualitative factors will also be taken into consideration, such as governance structure, reputation and professional standing, as well as track record and commitment to grow the PRS industry.

I understand that applications to obtain a licence to be a provider under the PRS must be in by February 15. What is the likely timeframe after that? 
The closing date for licence applications is February 15. The evaluation and selection process will include an examination of the proposed range of funds to be offered by each applicant. On approval as a PRS provider, the SC would then undertake a separate process to approve the PRS itself and to authorise all the funds under the scheme.

PRS providers would be required to offer dedicated retirement funds under the scheme. Other key steps towards full operation of the framework include approving the scheme trustees and the distribution framework to ensure professional conduct and suitability of recommendations made in respect of the PRS to members.  

How many provider licences will be approved under the scheme?
That will depend on the applicants and those who meet the criteria. Our primary objective is to have qualified and experienced providers, and these can be institutional or retail as long as they meet the criteria and demonstrate the capabilities to offer PRSs.  

The provider-eligibility guidelines are now largely final, but the investment guidelines are still to be finalised – what is still to be ironed out?
As part of the implementation process, sub-working groups have been formed and continuous engagement and consultations are being held with experts – local and foreign, government authorities and industry players. We will finalise the guidelines after this process is complete.

Does the PRS have to be set up as a trust structure?
The PRS will operate as a trust structure, with the scheme trustee having fiduciary duties towards the members, including ensuring that the assets of the funds are segregated from the PRS provider. The schemes will therefore be segregated from the fund provider to ensure that contributors’ assets are protected and under the control of the trustee. 

What are the rules on withdrawals from the PRS? 
These are being finalised in consultation with relevant parties, including the tax authorities.