New Disadvantages of Private Retirement Scheme (PRS) ?

Posted by Kris | Sunday, December 08, 2013 | , | 3 comments »


Losing Money
Money Flying Away

As you all know, the tax deductions for Private Retirement Scheme only cover up to RM3,000 of contribution per annum. The youtube video statement by Rafizi is worrisome because of his claims below on some recent tax clause changes are harmful for those that invest money into private retirement funds. Disclaimer : I am not 100% sure on whether the claims are true as purportedly in the video.


The claims are:

A) There will be taxes after withdrawal of your  private retirement fund. Supposedly this is to tax the benefit of the "tax deductibles" that you enjoyed over your investment period. However, if this is true, then it really is a negative to invest in PRS schemes.

Why??

The tax deductibles only up to RM3,000 per annum. So even with the tax after withdrawal, you still "somewhat okey" if every year you only contribute RM3,000. (they tax you on your tax deductible benefits). However, there is caveat later on in point (B).

But if you contribute more than > RM3,000 then it becomes "not okey" , because your surplus contribution later will be taxed together aslo and they do not fall into any tax deductions. For example, you contributed RM5,000 per annum, and RM3,000 are deductibles, hence RM2000 is not tax deductible will later on will be taxed when you withdraw!


B) Point B is the low down; If the tax happen on the withdrawal (lets say 20 years later when you are old), then it is really a big whammy to you. Tax will also cover your profit that you generated all over the 20 years ??!!

In general, it is better to be tax upfront when you enter a fund rather when you exit. The reason is that you don't want your hard earn capital gains to be taxed together when you retire. From the video, it mentions that your withdrawal will impact your taxables for that year and hence it might hike up your taxation rate significantly!!


Since I do NOT invest in PRS, I don't really pay attention to it. Please do you own homework and google more on this. This looks like a very gray area with the recent amendments; according to politicians though..






If anyone know more details on this law amendment, or etc. Please share.


Digg Technorati del.icio.us Stumbleupon Reddit Blinklist Furl Spurl Yahoo Simpy

3 comments

  1. ChampDog // 9:58 PM  

    Taxable??? Cannot be true gua...

  2. Anonymous // 8:16 PM  

    Background to Parliamentary discussion on the amendment to the Income Tax Act 1967 on section 109G
    ----------------------------------------------------------------------------------------------------------------------------------------
    As part of the tabling of the Finance Bill (No. 2) 2013 to amend the Income Tax Act 1967 section 109G, which excludes tax penalties for death and permanent departure from Malaysia conditions, the amendment was made to also include permanent total disability, serious disease and mental illness, as non-taxable pre-retirement withdrawals before the age of 55.

    PPA wishes to clarify on the tax implications for the Private Retirement Scheme (PRS) on the pre-retirement withdrawals before age 55.

    1. No tax penalty will be imposed for full withdrawals under the following circumstances:
    a. In the event of Death and permanent departure from Malaysia – as approved under section 109G of the Income Tax Act 1967
    b. Permanent Total Disability, Serious disease and Mental illness – to be approved as amendment under the Finance Bill (2) 2013
    c. Withdrawal upon reaching age 55 – full or partial withdrawals

    2. As the PRS objective is to help individual accumulate savings for their retirement, an eight (8) per cent tax penalty is imposed on any amount of contribution withdrawn by an individual from a private retirement scheme before reaching the age of 55 (subject to item 1 above) – existing Part XVI of Schedule 1 of the Income Tax Act 1967

    3. PRS member’s pre-retirement withdrawal is subject to the terms and conditions as prescribed under the existing PRS Guidelines. Individuals can make pre-retirement withdrawal only from account B, which comprises up to 30% of PRS account balance and is subject to eight (8) per cent tax penalty (as per item 2 above). The remaining 70% of PRS account balance under account A can only be withdrawn when the individual reaches age 55, as prescribed under the PRS Guidelines.

    PRS is a voluntary retirement scheme, to encourage Malaysians to accumulate additional savings for their retirement. To encourage the public to make voluntary contributions into the PRS, the Government has provided a tax incentive of up to RM3,000 for a period of 10 years beginning 2012 for all contributions made annually. In addition, the Government has in the recent Budget 2014 introduced a RM500 Youth Incentive for PRS contributions made by individuals between the ages of 20 to 30, for a period of 5 years starting from 2014.

  3. Kidbuxblog // 10:07 PM  

    Good sharing, AmInvest provides and has in place the building blocks to smooth your transition into retirement and help you live your retirement dreams. They offer Private Retirement Scheme (PRS) core funds or “default options” that cater to different age groups and differ in terms of the level of exposure to an equity portfolio based on investor’s risk tolerance which is good as a starting point. For detail visit:
    http://kidbuxblog.com/live-your-retirement-dreams-with-aminvest/