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

FIMM Combined Examination FCE

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1 Introduction: The FIMM Combined Examination (FCE)

0.1 FCE Exam Facts, Registration Rules and How to Use This Guide

2 Chapter 1: Understanding Collective Investment Schemes in Malaysia

1.1 What a Collective Investment Scheme Is and How Malaysian CIS Are Classified 1.2 Investment-Linked Funds Are Not UTS; Industry Growth and History 1.3 Participants in the CIS Ecosystem: Unit Holders, Managers, Trustees, Distributors and Regulators

3 Chapter 2: Introduction to UTS and PRS

2.1 UTS and PRS as Investments: Mechanics, Unit Calculations and How They Compare 2.2 Types of Funds: By Asset Class, Fund Structure and Investment Objective 2.3 Methods of Investing and Dollar Cost Averaging 2.4 Benefits and Disadvantages of Investing in UTS and PRS 2.5 Understanding Risk and the Risks of Investing in Schemes 2.6 Shariah-Compliant Schemes, Their Risks and the Role of the Shariah Advisory Council

4 Chapter 3: Regulatory Framework

3.1 The Regulatory Framework: The SC, Other Regulators and FIMM's Dual Role 3.2 Legislation, SC Guidelines and FIMM Rules Governing UTS and PRS 3.3 Regulation of Scheme Providers and Oversight Functions 3.4 The Deed, the Prospectus or Disclosure Document, and the Product Highlights Sheet 3.5 Portfolio Constraints: Permitted Investments, Liquidity, Borrowing and Exposure Limits 3.6 Regulations for Other CIS: Real Estate Investment Trusts and Exchange-Traded Funds 3.7 Regulation and Duties of the Scheme Trustee 3.8 Regulation of Marketing and Distribution: Distributor Categories, Collection Points and Agency Structure 3.9 Registration of Consultants: Eligibility, Fit and Proper, Duration, Variation and Revocation

5 Chapter 4 (Part 1): Marketing and Distribution — Disclosure and Transactions

4.1 Servicing Investors and the Contents of the Prospectus and Disclosure Document 4.2 The Product Highlights Sheet, Advertising Standards and Account Maintenance 4.3 The Purchase Process and Suitability Assessment Before Personal Advice 4.4 Cooling-Off Rights, Repurchase of Units, Suspension and Switching 4.5 Financing the Purchase of UTS: Process, Safeguards and the Risk Disclosure Statement 4.6 EPF Transfers and Withdrawals for Investment in Approved Unit Trust Funds

6 Chapter 4 (Part 2): Marketing and Distribution — Distributions, Reporting and Service

4.7 Distributable Income, Distributions and NAV, "Buying" a Distribution and Taxation 4.8 Reporting to Investors: Confirmations, Statements, and Semi-Annual and Annual Reports 4.9 Marketing Principles, Delivering Quality Service and Handling Complaints 4.10 The Effect of Inflation, Taxation and Investment Costs on Returns 4.11 Investment Alternatives to UTS and PRS

7 Chapter 5: Code of Ethics

5.1 Compliance, Ethics and the Structure of the FIMM Code of Ethics 5.2 Core Principle 1: Honesty and Integrity 5.3 Core Principle 2: Professionalism 5.4 Core Principles 3 to 5 and Non-Compliance: Conflicts, Disclosure, Confidentiality and Misconduct

8 Chapter 6: Personal Financial Planning

6.1 Personal Financial Planning: Definition, Features, Five Areas and the Six Steps 6.2 Financial Planner Credentials, Skills, Remuneration, and How a Planner Differs from a Consultant 6.3 The Consultant's Role in Investment Planning and Advising Clients Through the Life Cycle

9 Chapter 7A: Features and Operations of UTS

7A.1 Structure of a UTS, the Trust Deed, the Parties and Modifying the Deed 7A.2 UTS Fees, Charges and Expenses, and the Management Expense Ratio 7A.3 Dealing in Units, Valuation, NAV Calculation and Unit Prices 7A.4 Forward and Historical Pricing, and the UTMC's Holding of Units 7A.5 Unit Splits, Distributions and Their Effect on NAV 7A.6 Measuring UTS Performance: Returns, Performance Tables, Risk Measures and Qualitative Factors 7A.7 Operational Aspects of Shariah-Compliant UTS and PRS and the Shariah Contracts Between the Parties 7A.8 Borrowing to Invest in UTS and the Risks of Loan Financing

10 Chapter 7B (Part 1): The Pension Landscape and the PRS Framework

7B.1 The Malaysian Pension Landscape and the Adequacy of Retirement Savings 7B.2 The World Bank's Five-Pillar Pension Framework in the Malaysian Context 7B.3 Key Players: EPF, KWAP, LTAT, Employer-Sponsored Schemes and Annuities 7B.4 Why Malaysia Needs PRS: Ageing, Longevity Risk and the Benefits of PRS 7B.5 The PRS Framework and the Private Pension Administrator (PPA) 7B.6 PRS Structure, the Trust and Deed, Advantages over Other Products, Eligibility and Contributions

11 Chapter 7B (Part 2): PRS Operations

7B.7 The PRS Default Option and Tax Incentives for Members and Employers 7B.8 The PRS Account Structure (Sub-Accounts A and B) and Vesting 7B.9 PRS Withdrawals: Pre-Retirement, Retirement, Permanent Departure, Incapacity and Death 7B.10 Switching Between Funds and Transferring Between PRS Providers (Portability) 7B.11 Unclaimed Monies, Death of a Member and PRS Nomination 7B.12 PRS Funds: Number, Core and Non-Core Funds, Objectives, Risk Profiles, Asset Classes, Authorisation and Naming 7B.13 PRS Fees, Charges and Expenses 7B.14 PRS Unit Creation, Forward Pricing, Valuation, Distributions, Performance Measurement and Electronic Communication

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

Key Takeaways Explain This Topic AI

Department of Statistics projections in the study guide show the share of Malaysians aged 65 and above rising from 5.0% in 2010 to an expected 14.5% in 2040.

Longevity risk, combined with lump-sum EPF withdrawals at 55, means many retirees run out of savings early, with some studies showing most run out within 10 years.

PRS is a transparent vehicle that discloses all fees and charges, the investment mandate, fund performance and annual reports up front.

Changes to a PRS fund's investment objectives or fees require the approval of PRS members.

Singapore's Supplementary Retirement Scheme gives tax relief on contributions, accumulates returns tax-free and taxes only 50% of withdrawals at retirement.

Last updated: October 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