Country update

Malaysia’s new voluntary retirement plan, the Private Retirement Scheme (PRS) came into operation in December 2012. This defined contribution retirement savings scheme is available to all employees, including foreigners, working in Malaysia. Designed to supplement the mandatory Employees Provident Fund (EPF), the PRS includes new investment options for retirement savings. 

While the PRS is regulated by Malaysia's Securities Commission and centrally administered by the Private Pension Administrator (PPA), the funds are invested by approved Malaysian and foreign-owned financial institutions. Over 20 licensed investment funds with different risk profiles have already been set up by several approved providers.

Employees and employers (on behalf of their employees) can choose freely whether or not to contribute to the new plan. Individuals are permitted to pay into several funds, either with a single provider or several providers. They can also switch between the funds offered by a single provider at any time, or change providers once a year. If a contributor does not select a fund, their payments will be assigned to a fund based on their age group. There is flexibility on how much and when contributions can be paid into the PRS.

Tax incentives

In order to encourage take-up of this important new channel for retirement savings, the government is offering several tax incentives:

• Annual tax deductions for employee contributions of up to MYR 3,000
• Tax deductions on employer contributions of up to 19% of employees' pay (including EPF contributions)
• Employer contributions are not taxable to employees (same treatment as EPF contributions)
• PRS fund investment income is tax free
• Retirement benefits paid out under the scheme are not taxable income for employees

The new PRS provides employees with a chance to make their own investment decisions on how to meet their retirement goals, while encouraging employers to support the scheme as well.