Mixed views on private retirement scheme in Malaysia

Wednesday December 7, 2011

By TEE LIN SAY 

linsay@thestar.com.my

PETALING JAYA: Fund managers are mixed on the feasibility of setting up a private retirement scheme (PRS), as they need to know how it is governed and how different it is from a typical unit trust.

On Monday, the Securities Commission (SC) finalised the eligibility requirements for PRS providers. The recent enactment of the Capital Markets and Services Amendment Act 2011 provides the regulatory framework for a PRS industry, including empowering the SC to approve the providers.

MCIS Zurich Insurance Bhd fixed income head Michael Chang said that as the PRS initiative was relatively new and complemented existing social security funds, there were a number of questions that would be raised by potential investors.

“If it is not mandatory, how would these funds have decent investable sizes? How would one PRS be different from another? Size of an investment fund matters as you are able to reduce the investment costs for the benefit of investors,” Chang said.

He added that PRS providers would have to offer more compelling retirement returns than the mandatory ones. Also, it has to be attractive enough, more so than an insurance fund.

“An insurance fund does both: provides protection and savings. Retirement funds then have to ensure the returns generated at retirement are sufficiently available to the retiree for a comfortable living,” he said.

Chang pointed out that most investors these days could already asset-allocate on their own via unit trust funds or private banking expertise.

“So the selling point has to be more convincing. I mean we are relying on the asset allocation of PRS providers, hoping what they do gives you a reasonable return upon retirement.” he said.

Fortress Capital Asset Management (M) Sdn Bhd chief executive officer Thomas Yong feels that the move was healthy and in line with international practices.

“As people become more financially sophisticated, there is no reason to limit what they want to invest in. It is always good to have different providers.

“Instead of letting someone dictate how much dividends you get per annum, now you can decide on your own,” said Yong.

Yong feels that there will be many that would want to provide these services.

According to the SC, a select number of suitably qualified and experienced providers with the required expertise in pension or retail fund management would be approved to offer PRS schemes with an appropriate range of dedicated retirement funds catering to different investment and risk profiles.

Applicants will be assessed on their financial standing and organisational capabilities, including meeting relevant capital requirements, internal controls and risk management practices.

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