7B.6 PRS Structure, the Trust and Deed, Advantages over Other Products, Eligibility and Contributions
Key Takeaways
Every PRS must offer three core funds: a conservative fund, a moderate fund and a growth fund, which form the default option for members who do not choose funds.
Under the trust structure, the Scheme Trustee holds each fund's assets separately from the PRS Provider's assets, so they are protected from the provider's creditors.
A supplementary deed that materially prejudices members needs a special resolution passed by a two-thirds majority, or at least three-quarters of the value of units voted for terminating or winding up a scheme or fund.
A non-prejudicial deed change needs a statement from the Scheme Trustee and PRS Provider and at least seven days' written notice to members.
PRS is open to Malaysians and foreigners aged 18 and above, with no required fixed amounts or intervals for contributions.
PRS Compared with Other Retirement Products
| Feature | PRS | Unit trusts | Insurance and annuities |
|---|---|---|---|
| Core funds | Every PRS must offer three core funds: conservative, moderate and growth | Any type of fund, based on demand | Insurers offer any type of fund; no fund choice within an annuity |
| Default option | Core funds are the default for members who do not choose; allocated by age | None: the investor must choose | None |
| Withdrawals | Sub-account A locked until retirement age except for death, permanent departure, or permanent total disablement, serious disease or mental disability; sub-account B withdrawals limited (once a year) and usually taxed | Buy and sell freely, subject to each fund's terms | Low cash value early on; cancelling may not be worthwhile |
| Portability | Accrued benefits can be transferred to another provider through the PPA | Moving providers may mean paying charges again | Surrendering may return far less than was paid |
Portability is the main advantage the study guide highlights.
The PRS Structure and the Concept of Trust
A PRS under the CMSA is a retirement scheme governed by a trust: property held by one party (the Scheme Trustee) for the benefit of another (the member).
- The Scheme Trustee holds the assets (cash, stocks, bonds) on the member's behalf, separately from the PRS Provider's assets and segregated by fund, each clearly identified.
- The assets' form changes during the year (cash to equities and back) under the provider's strategy, but they remain under the Trustee's control.
- If the PRS Provider has financial difficulties or insolvency, members' assets are ring-fenced from its creditors.
- The Trustee has a fiduciary duty to act impartially in members' best interests. The provider (through its fund manager) makes day-to-day investment decisions, but the assets reside with the Trustee.
The Trust Deed
- The PRS Regulations require a deed, registered with the SC, creating the trust between the PRS Provider and the Scheme Trustee and meeting the PRS Guidelines' minimum requirements.
- The deed covers the duties of the parties and full particulars of the scheme and its funds. Covenants of the provider and Trustee, their joint covenants and other covenants are set out in Schedule D of the PRS Guidelines.
Modifying the deed
A deed may be changed by a supplementary deed that is registered with the SC and accompanied by either:
| Situation | Requirement |
|---|---|
| The change materially prejudices members (for example changes to investment objectives, risk profile, or fees and charges) | A special resolution of members: a two-thirds majority, or at least three-quarters of the value of units held by members voting when the purpose is to terminate or wind up a scheme or fund |
| The change does not materially prejudice members | A statement from the Scheme Trustee and PRS Provider that it is not materially prejudicial, plus at least 7 days' written notice to members |
Who Can Contribute
- Malaysians and foreigners may join.
- Members must be individuals aged 18 and above.
- Employers may contribute for employees as a benefit or to encourage loyalty, possibly under a vesting schedule (section 7B.8).
How Contributions Work
| Rule | Detail |
|---|---|
| Amounts and frequency | No required fixed amounts or intervals; providers may set minimum and maximum contributions for their funds |
| Opening the account | The PPA opens a lifetime PRS account once the member completes the form and other requirements; no contribution is needed to open it |
| Where money goes | The PPA does not accept contributions; members contribute through the PRS Provider, at account opening or later |
| Timing | If the account and first contribution are submitted together, the provider need not wait for the account to open before subscribing units |
| Flexibility | Contributions can stop and restart; a member may contribute to more than one scheme |
FIMM's practice question: correct statements are that employers can contribute for employees, providers set the minimum contribution and members can stop contributing at any time; it is false that members can contribute to only one PRS.
Applying It
Mr Kumar, a 29-year-old Indian national working in Kuala Lumpur, asks whether he can join a PRS. He can: PRS is open to foreigners aged 18 and above. He can contribute whenever he likes, above his chosen provider's minimum, and later contribute to a second provider's scheme too. If he leaves Malaysia permanently, the withdrawal rules for permanent departure apply (section 7B.9).
Which statements about PRS contributions are correct?
Employers may contribute for staff, providers set minimums and members may stop at any time
Members may contribute to only one PRS, must contribute monthly and cannot stop once they start
Contributions must continue every year until age 55, otherwise an 8% tax penalty applies to the account
The PPA collects all contributions directly from members and sets a fixed minimum of RM100 for every fund
A PRS Provider wants to change a fund's investment objective, which would materially prejudice members. What is required besides registering a supplementary deed with the SC?
A statement from the Trustee and seven days' notice
Approval from FIMM's board
Approval from the PPA only
A special resolution of members passed by a two-thirds majority
What is the minimum age to become a PRS member?
25
18
16
21
Sections you finish are checked off in the contents.