Dealing in Private Retirement Scheme
The scheme and the licence
Private retirement schemes are voluntary, long-term retirement savings vehicles established under the Private Retirement Schemes Act 2012 and regulated by the SC. Dealing in private retirement schemes is a distinct regulated activity: a unit trust or insurance licence does not authorise PRS distribution.
- Roles: a PRS Provider (licensed to establish and manage schemes), a Scheme Trustee, and PRS Distributors holding a CMSL for dealing in PRS. Schemes contain sub-schemes at different risk levels, plus a default option for members who make no choice.
- Members contribute voluntarily and employers may contribute; contributions attract personal tax relief, with the amount set in the annual Budget (RM3,000 a year has been the norm in recent years).
- Withdrawal is at retirement age (55), with limited pre-retirement withdrawal for specified purposes such as housing and education under the PRSA and its regulations; switching between sub-schemes and providers is permitted within limits.
- Distribution conduct: documented risk profiling and suitability assessment before recommending a sub-scheme, delivery of the Product Highlights Sheet and disclosure document, explanation of fees and cooling-off rights, and no promise of returns - PRS returns are not guaranteed.
Worked example
A 32-year-old asks a distributor for 'the PRS with the highest return'. The distributor cannot simply sell the top-performing sub-scheme: she must collect objectives, horizon, income and risk tolerance, explain that returns are not guaranteed and that fees reduce net returns, present the default option as a benchmark, document the assessment, and only then recommend. Selling on past performance alone is unsuitable advice and a distribution breach.
Traps
- Describing PRS as guaranteed or as an EPF equivalent - no dividend guarantee, no mandatory employer contribution.
- Assuming a unit trust or insurance licence covers PRS distribution.
- Skipping risk profiling because the client 'already knows what they want'.