How to tell PRS providers apart
CHOOSING the right pension provider is likely to be one of the most important financial decisions you will have to make. Why? It will determine one of many things - reap the rewards of a well-invested retirement portfolio with a financially secure retirement or spend your retirement years realising that you simply do not have enough money to do any of the things you had hoped for.
This decision has become even more important with the increasing life expectancy and rising living standards of Malaysians. Many Malaysians find that their savings are inadequate to meet their retirement needs and in response to this, Securities Commission Malaysia (SC) has initiated the introduction of a private retirement scheme framework in the country.
Malaysia's Private Retirement Scheme (PRS) is a voluntary retirement savings scheme provided by private-sector fund providers which are licensed and approved by SC. To date, eight PRS providers have been approved, each of which will introduce a range of funds for selection by investors.
So how does one go about choosing which PRS provider to sign up with? To start with, it is crucial that you ensure the PRS provider you choose is one of the eight approved by SC. Four other areas to consider are:
1. Fund Choice
As with any form of investment, you will need to take into account various factors such as your age, personal and household income, risk appetite, goals, investment horizon and your own retirement needs even before deciding what scheme and what kind(s) of fund(s) to invest in. Zeroing in on this from the onset will allow you to choose a fund(s) that best matches your investment needs.
As your needs change through the different stages of your life, it is also important to look out for a PRS provider that has fund choices to cater to your evolving needs, and provides the flexibility to switch funds easily. PRS provides you the option to contribute to one fund or several funds under a PRS scheme offered by the same or different PRS providers. It is advised that you review your PRS portfolio regularly to ensure it matches your retirement goals.
2. Past Performance
The biggest contributing factor to the size of your pension pot when you retire is the performance of the fund(s) you have invested in. As PRS is new, there is no track record for fund performance, however you might find it useful to find out how other funds managed by the respective PRS providers have performed in the past. Remember to judge the performance of these funds in the long-term (at least five to 10 years) as investments can fluctuate in the short-term.
Finding out how the PRS provider and their funds fared during challenging market conditions may also give you an indication of the investment expertise and capabilities of each PRS provider. For example, Fund A and Fund B both delivered double-digit returns during good investment market and economic conditions.
However, during "trying" times, even though Fund A and Fund B underperformed, Fund B's returns dipped lower than that of Fund A. Thus, you should always assess the PRS provider's fund performance during both good and bad times. Please see "Investment Expertise and Capabilities" for more information.
3. Fees & Charges
Consider the various fees and charges by PRS providers before investing. For example, higher sales charges will result in you having a lesser amount to invest in a PRS fund, thus less to spend for your golden years! However, this does not mean that your selection should be based on the cheapest fees and charges. Instead consider the PRS provider associated with the most reasonable cost.
Fees and charges to look out for include sales charges, annual management fees, annual trustee fees, switching and transfer fees and redemption charges. Hence, it is always a good idea to do your homework and check the fund's product disclosure document and product highlight sheets by each PRS provider which detail the above costs.
4. Investment Expertise and Capabilities
There is always a certain amount of risk associated with investments. As such, you may want to consider a PRS provider that can optimise returns on investments within acceptable risk boundaries. How do you evaluate this? Do your research on the background of the PRS provider, find out more about the funds they manage and most importantly the track record of the fund managers. Some PRS providers have an award-winning track record and an experienced team who have proven to deliver strong and consistent performance over the long-term.
Some PRS providers have also been acknowledged for their various investment expertise and capabilities across asset classes, which gives a gauge on the company's ability to optimise returns over the amount of risk taken. You will likely want to choose the most reputable and capable PRS provider as possible.
Shopping around is key. There are many different resources available when seeking information on PRS providers and their respective schemes ranging from online resources, promotional leaflets, brochures, directly from the fund managers and the Private Pension Administrator (PPA).
Alternatively, you can opt to approach financial planners who can assist in helping you understand the options available in the market and find the best solution to help you attain your desired retirement lifestyle. It is important to understand that the fund offerings and strength for each PRS provider may vary and as such it is important for you to do your homework and select a scheme that best fits your requirements.
Datin Maznah Mahbob is the chief executive officer, Funds Management Division of the AmInvestment Bank Group, and a member of AMMB Holdings Bhd
