ONE of the most frequently asked questions is, how safe is the Private Retirement Scheme (PRS)?
The PRS was designed to ensure the public’s confidence and concern is adequately and properly addressed.
The PRS industry was launched with a comprehensive and robust statutory and regulatory framework to grow and protect members’ interests. As PRS seeks to be the third social security pillar to provide additional retirement funds, it needs to engender public confidence that the scheme is well regulated, supervised and developed.
A multi-tier risk governance structure has been implemented to ensure adequate and proper protection of PRS members’ interests with proper segregation of roles and responsibilities of all key parties.
Firstly, all key parties involved must be licensed under the Capital Markets and Services Act (CMSA), under the regulatory purview of the Securities Commission Malaysia (SC). The SC grants approval for PRS providers, distributors, trustees, and the Private Pension Administrator (PPA) to operate within the PRS industry. Only licensed parties are approved to handle PRS.
Secondly, a single PPA, unique only to Malaysia, is established as the central administrator to provide life-time efficient account administration, ongoing members servicing, information and education to PRS members. The PPA is an independent organisation which serves and protects PRS members’ interests.
Thirdly, there are only eight licensed PRS providers, approved by the SC, based on a set of stringent guidelines. These providers have been selected based on their investment management capability, experience and track record in managing public funds.
Providers’ key duties and responsibilities include the marketing, administration and investment management of PRS funds. Furthermore, providers are also required to establish their risk management and compliance structure to ensure they meet all regulatory standards and guidelines.
Fourthly, the guidelines require that an independent trustee be appointed to oversee the management and operations of the scheme in accordance with the trust deed and disclosure documents.
In addition, the trustees also act as custodians of the monies invested in PRS funds. This provides proper segregation of custodianship and the providers’ management of the PRS funds.
Last, but not least, the SC is responsible for the supervision of all parties involved in enforcing the regulations and in compliance with the PRS guidelines.
The above regulatory framework forms the foundation to provide public confidence and safeguards PRS funds. However, there are other safeguarding aspects, which, together with the regulatory framework, seek to make PRS as safe as possible for long-term retirement savings and investments.
In the next article, we will explore the risk management of PRS funds from an investment perspective and how risks are mitigated while pursuing return opportunities.
* Dato’ 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.
If you have any questions related to retirement planning, email AskPPA@ppa.my.