Which benefits of PRS does the study guide cite?

More long-term capital for growth and better living standards in retirement. FIMM's practice question identifies an additional source of long-term capital and improved retirement living standards as cited benefits. PRS complements EPF and reduces, rather than increases, the burden on government.

What approval is required to change the investment objective or fees of a PRS fund?

Approval of the PRS members. The study guide states that any changes to the investment objectives or fees require the approval of PRS members, while less material changes require a supplementary disclosure document.

Under Singapore's Supplementary Retirement Scheme, how much of a withdrawal at retirement is taxable?

50%. The study guide notes that SRS contributions attract tax relief, returns accumulate tax-free, and only 50% of withdrawals are taxable at retirement.

7B.4 Why Malaysia Needs PRS: Ageing, Longevi | Free Guide 2026

The Need for Retirement Protection

An ageing, longer-living population

Year	Below 15	15–64	65 and above
2010	27.4%	67.6%	5.0%
2020 (estimated)	23.3%	69.7%	7.0%
2040 (expected)	18.6%	66.9%	14.5%

Life expectancy (years)	Male	Female
1950s	56	58
2010	72	77
2020 (estimated)	73	77
2040 (expected)	78	83

Source cited by the study guide: Department of Statistics Malaysia projections (2016) and population estimates (2020). Check DOSM for the latest figures.

Longevity risk and early exhaustion

Longevity risk (outliving one's savings) is made worse by the practice of lump-sum EPF withdrawal at 55 and by rising lifestyle expectations. Evidence suggests that savings under EPF and other second-pillar schemes are not enough to last, with some studies showing most retirees run out of money within 10 years, especially when EPF is their only source.

Four Possible Responses

Option	Study guide assessment
1. Raise the mandatory retirement age	Gives more years to save; people are healthier and can work longer
2. Raise mandatory contribution rates	Not ideal: strains employers, raises business costs, hurts competitiveness, and only helps those covered by EPF or other second-pillar schemes
3. Raise the minimum wage over time (if productivity allows)	Higher wages mean more saving through EPF and voluntary schemes
4. Develop a voluntary third pillar	Widens the range of schemes, extends coverage voluntarily to all groups and improves adequacy; PRS falls under this solution

The traditional fourth pillar (family support) works only when many young people support few elderly, and the burden grows as the population ages, so a self-sufficient solution is needed. The government promotes PRS with tax incentives as a universal, flexible and tailored way to save more.

The Benefits of PRS

For individuals

Reaches groups such as the self-employed who do not save through EPF.
Improves adequacy through extra savings, plus voluntary employer contributions.
Lets people become self-funding retirees, with yearly returns during retirement supplementing EPF drawdowns and other income.

A transparent investment vehicle

PRS discloses up front:

all fees and charges (direct and indirect);
the investment mandate: objectives, strategy, limits and asset allocation;
fund performance; and
annual reports, plus the choice of providers and funds.

Changes to investment objectives or fees require members' approval; less material changes need a supplementary disclosure document. Portability (switching providers through the PPA) supports transparency and rewards good performance.

For the economy and government

Benefit	How
Long-term capital	Unlocks Malaysians' high savings into sustainable fund flows that support growth
Capital market	Product innovation and competition, more intermediary activity and skills, scale in fund management
Government finances	A strong third pillar reduces the need for a government social safety net in retirement

FIMM's practice question lists the cited benefits as an additional source of long-term capital and improved living standards at retirement; PRS does not aim to reduce investment in unit trusts or increase the government's fiscal burden.

Using the Arguments with Clients and Employers

An individual client often asks, "I already have EPF; why do I need PRS?" A Consultant can draw on the study guide's points: EPF alone often runs out early in retirement, PRS adds a second source of professionally managed savings with a choice of providers, the RM3,000 tax relief reduces the cost of saving, and the 70:30 sub-account structure protects most of the money for retirement.

An employer may ask why it should contribute to PRS for staff. Benefits include an extra retirement benefit that helps attract and retain talent, an optional vesting schedule that rewards loyalty, a tax deduction on contributions up to 19% of an employee's remuneration (section 7B.7), and outsourced administration through a PRS Provider and the PPA.

In both cases the Consultant must still assess suitability and explain the risks and withdrawal restrictions, because PRS funds are not guaranteed.

"Third Pillar" Schemes Abroad

Scheme	Key features in the study guide
KiwiSaver (New Zealand)	Started July 2007 as a voluntary long-term savings scheme to raise New Zealand's low saving rate; employees choose a contribution rate from set options and can change rates or providers; the self-employed choose how much to save; tax benefits encourage participation
Supplementary Retirement Scheme (Singapore)	Voluntary contributions with tax relief; returns accumulate tax-free; only 50% of withdrawals are taxable at retirement; since 2016 the annual cap is 15% of the Absolute Income Base for citizens and permanent residents and 35% for foreigners

FIMM Combined Examination

7B.4 Why Malaysia Needs PRS: Ageing, Longevity Risk and the Benefits of PRS

Key Takeaways