THE Private Retirement Scheme (PRS) is a well-regulated scheme. It provides ample safeguarding features – from close regulation and supervision by the Securities Commission (SC) to well-defined investment management mandates – to ensure that funds are professionally managed.
However, that doesn’t mean that contributors can or should just leave everything in the hands of the PRS experts.
PRS contributors still need to play a role in managing their funds to achieve their retirement objectives.
To start with, they play an important role in choosing the funds to invest in. This is the starting point of committing money to the chosen fund. As such, this is an important decision and should be considered carefully and with all the necessary information at hand, as it involves risks.
As PRS funds are long-term investments, contributors should pay attention to the adage “caveat emptor” or “let the buyer beware” lest they make a decision which leads to dire consequences.
One should adhere to the old saying “begin with the end in mind”, to establish the purpose for investment, which can then be translated into investment objectives.
Without clarity on the desired end in mind, investment decisions will often be influenced by perceptions and assumptions which may result in unsuitable investments.
This starting point of investing with a purpose is critical as it will drive subsequent decisions on risk-taking, desired returns, investment tenure and ultimately the choice of funds and underlying assets.
It is therefore imperative that PRS contributors spend time doing their “homework” or due diligence in order to establish a proper and suitable plan for their retirement before making any decisions on fund investment.
PRS contributors can access the Private Pension Administrator Malaysia (PPA)’s website at www.ppa.my to obtain PRS information and advice on how to get started with PRS or alternatively find a registered PRS consultant for advice.
The emotional bias in making investment decisions is often influenced by greed and fear, where market volatilities influence an individual’s perception of risks and returns.
To mitigate the influence of emotional responses to market movements, PRS contributors should consider the following when deciding on their investment:
1. Just like all long-term decision-making, the starting point to commit long-term savings and investments should be taken based on a plan to accomplish the desired retirement funding outcome.
2. PRS offers a choice of providers and funds which serves to diversify investment risks, by not “putting all your eggs in one basket”.
3. Regular monthly contributions mitigates market volatilities through “dollar cost averaging” your investments and reduces market entry and timing risks.
4. The PRS savings for retirement assets are ideally suited for long-term investing, to generate growth and/or income requirements.
5. Rebalance the PRS funds when necessary, taking into account changes in life stage situations and fund performance expectations.
Having a proper retirement plan also provides the roadmap for ongoing monitoring and review of PRS funds’ performance.
As the journey towards retirement is long, contributors should pay attention to monitoring the performance of their funds to ensure they achieve the desired risks and returns.
At the very least, contributors should review their PRS funds annually to ensure the performance is on track and up to expectation.
A key mistake that investors often make is to “invest and forget and regret”. Annual monitoring and review is part of ensuring that the retirement plan is on track and that any performance deviation is flagged and attended to.
PRS offers contributors the choice and flexibility to switch funds if a fund is underperforming or to transfer funds to another provider.
Aside from fund performance issues, conducting an annual review will also highlight any changes to the contributor’s personal situation which may necessitate changing the investment objectives or risk profile.
This will ensure that the contributor’s retirement and investment objectives are aligned and not mismatched.
To assist PRS contributors in monitoring their PRS funds, PPA provides 24/7 access to their PRS accounts with up-to-date funds’ performance and consolidated reporting of all PRS funds and an annual consolidated account statement.
* Datuk Steve Ong is the CEO of the Private Pension Administrator Malaysia (PPA), the central administrator for the Private Retirement Scheme (PRS). The PPA is tasked by the Securities Commission Malaysia to promote the growth of the PRS industry, create general awareness and educate the public on retirement savings. The PPA also works to protect the interests of PRS contributors. This article by PPA first appeared in PRS Youth.
If you have any questions related to retirement planning, email AskPPA@ppa.my.