5 responses

  1. Chong Kong Hui
    March 9, 2013

    Both PRS and DA are good option for many self-employed or higher income employee as the plans has two advantages
    1) Tax saving
    2) Enhancing total retirement fund

    Which to choose? Or perhaps taking both….

    • Richard
      March 9, 2013

      Yes, both schemes has the advantages as highlighted by you. I suppose the choice of schemes is a matter of personal reference. Personally, I’ll still opt for the Deferred Annuity scheme. What do the financial planners think? I’ll be great if they could give some of their opinion here.

  2. Victor Liew
    July 15, 2013

    The biggest risk a person faces is not loss of capital but rather loss of value of money.

    With the PRS scheme you are given a choice of Conservative, Moderate and Aggressive. The differences are your exposure to equities versus bonds.

    The underlying assumption here is bonds is less risky than equities – something that may over the next 36 months prove to be wrong.

    I advise my clients to pick the Aggressive funds, but with different fund managers every few months.

    This method is a mix of diversification and dollar cost averaging.

    The reasoning is everyone needs to target a return of 10+%. At 10% you double your money every 7+ years.

    Deferred annuity schemes are guaranteed at a rate of 5+%. You double your money every 14+ years.

    The reason why Deferred Annuity Schemes give a “guarantee” of sorts (which is actually not a real guarantee, I think, if you read the fine print) is the insurance companies invest mostly in bonds which pay a fixed return.

    This can backfire. Soon.

    Insurance companies are going to face a big challenge when interest rates rise (as the Federal Reserve reduces QE3’s free flow of money) and will start to face capital losses in their bond exposures.

    Yes, I can see the insurance companies going to the banks for help to relieve them of their capital requirements.

    Going back to the loss of value of money.

    Does anyone really believe the official 2%+ inflation rate?

    I think the “feel it in my wallet” of 5 – 6% inflation rate is the reality

    If you agree with me on the inflation rate, you will realise Deferred Annuity Schemes are simply not good coverage of loss of value of money over the long term.

    So from a pure investment return stand, the PRS scheme if one takes the Aggressive choice, is the best.

  3. yl
    December 17, 2013

    There is a tax penalty to withdrawal from annuity scheme too, at least from Etiqa http://www.etiqa.com.my/English/Documents/SRX_Brochure_E.pdf.

    Tax penalty
    8% x Min (Premium eligible for tax relief, Annuity Premium) x
    (Number of premiums paid)
    = 8% x Min (RM3,000, RM5,900) x 5 = 8% x RM3,000 x 5 = RM1,200
    The policyholder will receive RM23,510
    Etiqa will pay IRB RM1,200 from the surrender charge on behalf of
    the policyholder
    The surrender charge imposed during the accumulation period is
    inclusive of the 8% tax penalty.

    • Richard
      December 19, 2013

      In the recent Budget 2014, it was proposed that a 8% penalty will also be imposed for early withdrawals from a deferred annuity scheme. Looks like Etiqa is prompt to update its brochure as well.

      Thanks for bringing that up, as it gives me an opportunity to update the position on deferred annuity through this comment.

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