Boom in syariah funds

Boom in syariah funds:Inflow via Private Retirement Scheme will mean richer treasury, say economists

WEDNESDAY, JULY 25, 2012 - 12:31

by Azril Annuar

Location: 

PETALING JAYA

Navaratnam: With this fund Malaysia will not have to borrow money from abroad

THE Securities Commission's (SC) prediction of a RM3.3 billion to RM7.7 billion inflow into syariah funds via the Private Retirement Scheme (PRS) will mean a richer treasury for the nation.

Asian Strategic Leadership Institute's (Asli) Centre for Public Policy Studies chairman and economist Tan Sri Ramon Navaratnam told The Malay Mail that with such a fund available domestically, there was no need for Malaysia to borrow money from abroad.

"This will enable higher savings for the national economy and provide the government with greater opportunity to borrow domestically for budgetary purposes," he said.

Navaratnam said with that the nation would not be at the mercy of currency speculation and fluctuations, granting the nation a "more stable borrowing" scheme.

He said SC's projected influx of cash could establish Malaysia as a major centre for Islamic banking.

"In terms of Islamic banking, Malaysia is one of the major players and this scheme can assist in promoting the system to the world. So, there are many advantages to this scheme which one has to recognise," he said.




Yeah: Syariah-compliant system would create a stronger economic cycleHe said contributors of the PRS syariah system would be "well protected" because the government was keen to promote Islamic finance.

Ram Holdings group chief economist Dr Yeah Kim Leng believed the syariah-compliant system would create a stronger economic cycle.

"The funds contributed will be channelled to business enterprises, of which its revenue will go to shareholders besides generating employment," he said.

"Employees who contribute will also benefit with more money, better savings.

"New employment means cycle employees who will add on to the funds. This creates a virtual cycle where everyone will benefit in a win-win situation."

However, Yeah said the flipside to the high returns was the high risks involved.

"When you have greater returns in your investment, you also have high risk factor. However, Islamic financing is known to mitigate or nullify the risks to one's investments as it does not go into high risk enterprises such as gambling or alcohol," he said.

"Syariah-compliance financing is known to go into blue chip companies and what can be termed as 'safe' industries and enterprises.

In the short term, Yeah said depending on how much contribution to be channelled into PRS, a large part of it would be invested in Syariah funds for it to create demand, the demand for safe and high yielding fund.

Guarantee savings against losses, says Fomca

Guarantee savings against losses, says Fomca

WEDNESDAY, JULY 25, 2012 - 12:39

by Azril Annuar

Location: 

PETALING JAYA

Selvaraj: Calls for greater awareness campaign on PRS

THE Private Retirement Scheme's (PRS) offering of Syariah-compliant product range does not guarantee the contributor's savings is protected against losses.

Federation of Malaysian Consumers Assocation (Fomca) deputy president Muhammad Sha'ani Abdullah said protection must be guaranteed if the government wants to provide such a scheme.

"Any form of savings must be guaranteed by the government against any losses. High returns, coupled with high risks, is not the objective of such retirement schemes,"

"Enticing investors or contributors by offering high returns, you're exposing them to future losses and denying them the benefits during old age. We cannot use syariah-compliance to justify or guarantee this." said Muhammad Sha'ani.

He pointed out that even religious organisations have absconded with public funds and there was a time when Bank Islam had to be "rescued".

"No savings should be put under such fund managers where the risks are higher.

"The government must ensure the security of the savings before actually promoting such alternative providence scheme.

"Since the government is proposing it, they must provide the means for protection," he said. Muslim Consumers Association of Malaysia chief activist Datuk Nadzim Johan, however, was excited with PRS new product range, pointing out that the current Employees' Provident Fund (EPF) contributors have limited scope to ensure the money was being used in the manner of their choosing.

"There is an opening there, before this there was complaints that some funds taken by EPF are not syariah-compliance. We welcome the idea," said Nadzim.

Nadzim said he has doubts whether the offering would be syariah-compliance in both form and spirit or merely in form alone.

"On syariah-compliance, there are many schools of thought. Thus, we are afraid it may just be in form but not in spirit," he said.

Fomca chief executive officer Datuk Paul Selvaraj in the meantime calls for a greater awareness campaign on PRS following complaints that consumers and potential contributors are still in the dark regarding the scheme and its benefits.

"We should educate consumers on this because young executives are not prepared for retirement.

"People want to know. There should be more information passed on to prepare people for retirement."

Tough challenge ahead for PRS to prove itself

Tough challenge ahead for PRS to prove itself

Thursday, 26 July 2012 00:04 Ishun P Ahmad 0 Comments

SC chairman Datuk Ranjit Ajit Singh (left) and Datuk Seri Mohd Najib Razak at the launch of PRS in Kuala Lumpur recently (pic: Hafzi Mohamed)

The newly launched private retirement scheme (PRS) does not guarantee or provide minimum returns on investors investment.

This could prove a hurdle to attracting investors in the budding days of the private pension idea. It will take a while before the scheme can deliver a track record that will allow it to sell itself as a worthwhile investment alternative.

This can change of course, if investors are content to work with the track record brought by PRS providers. At the moment, eight providers are in the game to make available to individuals a range of retirement funds to invest in as per their retirement needs, goals and risk appetite.

The eight selected providers, thus far, are AmInvestment Management Sdn Bhd, American International Assurance Bhd, CIMB-Principal Asset Management Bhd, Hwang Investment Management Bhd, ING Funds Bhd, Manulife Unit Trust Bhd, Public Mutual Bhd and RHB Investment Management Sdn Bhd.

Perhaps, after a spell, it could then present itself as an alternative investment scheme providing good returns at a relatively low risk.

Why the lack of a guarantee?

One possible explanation is that it would not be feasible as there is always risk in investments.

When investing, one has to contend with volatility, market conditions and other factors. Although a cliché, but “no lunch is a free lunch” is applicable here.

Instead of a guarantee, what investors can look forward to is the track record of the fund managers. They do come with a certain track record on which one can base one’s investment decision.

At this juncture, the Securities Commission Malaysia (SC) has approved 24 funds.

“To give you a guarantee, the fund will be constrained as you will have to invest in a narrower basket. The idea is to give investors a choice, a supplementary scheme to manage retirement savings,” said a fund manager.

Also, investors will now have a new choice of where to park their retirement money. The PRS is a supplement to the Employees Provident Fund. Investors now can tap into experienced fund managers abilities.

Another plus is the lower entry cost to participate in the investment scheme.

Until a track record is established, for some investors, the local PRS industry may still face an uphill battle to gain traction.

Until then, Bumiputera investors, for instance, have extra investment options at hand to consider. They can opt to invest in Amanah Saham Bumiputera (ASB), which has an impressive track record of providing excellent annual returns of 7% to 8%.

Furthermore, investors do not have to contend with capital depreciation risk, management fees and lock-up periods and tax penalty for early withdrawal.

There are also a number of Amanah Saham funds they can invest in that provide slightly lower returns compared to the ASB.

Even though there is no explicit guarantee by fund manager Permodalan Nasional Bhd, many local investors have taken for granted the higher rate of returns. Here, PRS would play second fiddle, as they cannot make such promises.

Furthermore, as PRS is a long-term investment and has a mandatory lock-up rate of 70% of all contributions until retirement, investors could stand the risk of not being able to withdraw the locked-up amount if the investment turns sour. However, the proponents of PRS would say any risk is minimal as it can be spread over a longer period.

For people to invest their life savings as an alternative investment for retirement, PRS would probably need to give some assurance and be convincing that it is a worthwhile long-term investment that provide reasonable returns and is relatively risk-free. This could be managed by educating the public.

In a nutshell, PRS is likely to face some tough challenges in the initial stage to convince the public that it is a good and viable alternative pension scheme. As is the common rule of all investment schemes, the survival and the long-term viability of PRS will depend on its performance.

PRS funds are not risk-free

Posted on 22 July 2012 - 08:40pm
Last updated on 23 July 2012 - 08:28am

Ee Ann Nee
sunbiz@thesundaily.com

• 
• 
• 

PETALING JAYA (July 23, 2012): Funds offered under the private retirement scheme (PRS) are not risk-free and investors should choose a fund based on their objective, time horizon and risk appetite, fund managers warned.

"Investors need to be reminded that no investment is risk-free, including PRS funds. Retirement investing should be simple, straightforward and low-cost, committed to delivering performance without the heavy price tags," Hwang Investment Management Bhd (HwangIM) chief product officer Steve Lim told SunBiz in a written reply.

As one of the eight approved PRS providers, HwangIM is selling its PRS funds at zero sales charge to attract investors, said Lim, adding that investors' contributions will be fully invested from day one.

"The investment horizon in PRS is long term, so any market volatility should be smoothened out over the long run," he added.

HwangIM is targeting to offer employers and employees solutions in the form of contributions to retirement funds as well as staff benefits and retention in the form of additional contributions and vesting programmes.

Lim said its personnel and resources within the existing infrastructure have been earmarked to plan and execute the new PRS line of business.

"The HwangIM team will be managing both the PRS funds as well as its existing unit trust funds.

"The Employees Provident Fund (EPF) has set the bar high and we are prepared to challenge ourselves to achieve the scheme's objective to help Malaysians build retirement savings. The success of any retirement scheme is stability and regular returns — fund performance consistently over the longer term. We are confident we can deliver," he said, adding that the PRS is skewed to offer more aggressive portfolios, hence returns, compared with the EPF scheme.

Unlike unit trust funds, Lim said PRS is a long-term retirement scheme that comprises a range of funds with different risk-return profiles, offered only by approved PRS providers, while the former vary tremendously in terms of investment objective, risk, return, sales charge and the various fees common to such collective investment schemes.

"Understandably, there will be a lot of reservations towards an untested and ambitious scheme like this. However, the blueprint is based on an existing and successful EPF and it will be managed by independent fund houses that have sound investment track records of at least 10 years," Lim said.

"This flexibility is equivalent to investing on your own, except that the PRS providers are selected by the Securities Commission (SC) to manage such funds, which means there's an added layer of control.

"In addition, the front-end cost of PRS should be competitive or lower compared with investing in unit trust funds," he added.

CIMB-Principal Asset Management Bhd, also a PRS provider, said PRS provides more flexibility and choice because individuals can now invest additional savings according to their age and risk-return tolerance.

Its CEO Campbell Tupling said the company expects the conservative portfolio to provide at least the returns that EPF is declaring so as to encourage contributors to invest.

"The PRS will provide an additional channel to save for retirement, where it exists to complement the EPF as well as to help those who do not have an EPF account," he said.

OCBC Bank (Malaysia) Bhd head of wealth management, Ong Shi Jie, sees PRS providers approaching employers to obtain greater participation.

She said there would also be attempts to reach out to end-investors through distributors such as banks.

"Although returns from contributions made to PRS are not guaranteed, there is a need to supplement basic retirement savings (EPF) through private initiatives.

"Clearly there are tax incentives to spur this. Better investor education would provide a sustainable approach," she added.

Ong said PRS allows investments into a unitised structure such as a unit trust fund, whereas a unit trust itself is simply a unitised structure.

"PRS is thus by nature a scheme that requires funds to have different fee structures and features incorporating enhanced customer care. The latter means, for example, that only certain age groups can participate in the riskier funds," she said.

PRS providers will have to provide three default funds: growth, moderate and conservative; and up to four other funds. The first set of schemes comprising 24 funds will be available from September.

Malaysia’s pension reform may boost Islamic funds

July 23, 2012

Contributors can allocate money to a wide range of products under a new scheme.

SYDNEY: Malaysians will have more room to allocate part of their retirement contributions to Islamic investments under sweeping government reforms to the pension system.

At present, the Employees Provident Fund (EPF) receives public pension contributions and invests the money. Some of that investment is in syariah-compliant areas such as sukuk and halal stocks, but contributors have limited scope to ensure the money is being used that way. A maximum 20% of savings can be placed through the EPF into a single mutual fund.

Under the new, voluntary Private Retirement Scheme (PRS), which will not replace the EPF but supplement it, contributors will be able to allocate money to a wide range of products offered by private-sector fund management firms. This will allow them, if they choose, to target syariah-compliant investment – potentially increasing the amount of money going into Islamic instruments.

The scheme’s governing body which will oversee how the fund managers operate, the Private Pension Administrator (PPA), was officially launched last week.

“PRS will contribute towards the growth of Islamic fund products,” Zakie Ahmad Shariff, board member of the PPA and chief executive of the Federation of Investment Managers Malaysia, told Reuters.

The initial rollout of 30 PRS products will include six Islamic funds, he added.

“Early adopters will have much to gain – especially for the Islamic players,” said Mahadzir Ahmad, a wealth management consultant and an instructor at the Financial Planning Association of Malaysia.

Growth

As of March 31 the EPF managed assets worth RM488.5 billion (US$154 billion), according to company data. That is larger than the RM435.36 billion of assets under management in Malaysia’s entire fund management industry, according to securities commission data.

At least partly because of PRS, Malaysia’s private pension industry is expected to grow to RM73 billion by 2020 from effectively zero now, according to a report by the government’s Economic Transformation Programme (ETP).

The securities commission has a more modest but still sizeable estimate; in April last year, it said: “Over the next 10 years, it is projected that assets under management in the private retirement scheme industry will grow to RM30.9 billion.”

Syariah-compliant funds have on average held 10.6% of total assets under management in Malaysian retail products over the last two years, according to Reuters calculations based on securities commission data.

If this ratio is maintained under the PRS scheme, Islamic funds could theoretically see inflows of RM3.3 billion to RM7.7 billion.

All eight of the approved PRS fund managers already have syariah-compliant retail products. They include some of the country’s most established firms such as CIMB-Principal, AmInvestment and Public Mutual.

Firms will begin offering conventional products first but syariah-compliant products will soon follow, said Nancy Chow, director of marketing and strategic product development at AmIslamic Funds Management. AmInvestment plans to have an Islamic PRS, she said.

Hwang Investment Management will include syariah-compliant products in its PRS range, Steve Lim, chief product officer at Hwang Investment Management, said in a statement. “We foresee our investment in PRS to break even after three years.”

Products
Under PRS, fund managers will be required to offer a minimum of three “core” products catering to different investor risk profiles. A maximum of seven products can be launched under the scheme by a single PRS provider, but if it intends to offer both conventional and syariah-compliant options, it can offer up to 10, according to securities commission guidelines.

This could encourage fund managers to launch Islamic products to maximise their access to PRS money. The initial products will be available from September, the securities commission said.

Guidelines also allow for the outsourcing of the fund management function, which could open the door for boutique firms to tap into the sector without the need for established sales channels.

In order to encourage take-up in the PRS scheme, the government is offering incentives such as personal tax relief, tax deductions for employers on their contributions to the scheme, and tax exemption on income received by PRS fund management firms.

Some details of how the PRS scheme will work, and whether it will impact Malaysia’s current retirement age of 55 years, are not clear, Ahmad said. “These details are not forthcoming yet.”

The personal tax relief of up to RM3,000 may need to be increased to make it enticing to higher income earners, he added. Without a significant tax benefit, “the take-up might not be as great.”

- Reuters

PM launches new voluntary Private Retirement Scheme

Boosting savings for retirement

VOLUNTARY SCHEME: Najib launches private pension framework for salaried workers and self-employed

Datuk Seri Najib Razak with Securities Commission chairman Datuk Ranjit Singh (fourth from left) and deputy chief executive of Securities Commission Datuk Dr Nik Ramlah Mahmood (third from right) at the launch of the private retirement scheme in Kuala Lumpur yesterday. With them are board members of the Private Pension Administrator. Pic by Aizuddin Saad

KUALA LUMPUR: PRIME Minister Datuk Seri Najib Razak yesterday launched the private pension framework to help salaried workers and the selfemployed have enough savings for their retirement.

He said the move marked an important step in developing a comprehensive multi-pillar retirement framework for the country. Voluntary private pension scheme, the third pillar in the retirement framework and part of crucial national pension reforms, will enable workers to save beyond their contributions to the Employees Provident Fund and other mandatory pension schemes.

The first set of schemes, comprising 24 funds offered by eight Private Retirement Scheme (PRS) providers, has been approved by the Securities Commission. The funds will be available to the public in September. PRS allows people who are EPF contributors to save more for their golden years while giving those not on the EPF scheme, such as hawkers and petty traders, a way to ensure their retirement savings are properly managed.

“PRS offers opportunities for the people. For individuals, it provides savings for career mobility while for employers, PRS may be used for retaining and attracting talent,” Najib said.

Najib, who is also finance minister, said this at the launch of the Private Pension Administrator and Private Retirement Schemes. “My fervent wish is to ensure that each and every one of our young productive adults and, indeed, the future generations of Malaysians after them will have enough savings and financial assets to enjoy their retirement to the fullest.”

He said the increase of the average life expectancy of Malaysians to 80 years meant that Malaysians, as savvy consumers, must do more to save.

“It means our future generation will live 20 years more after retirement.” Many who contributed to EPF realise that their savings could not last more than three years on average after their retirement, thus, causing hardship to those who want to sustain their lifestyle.

Najib said the private pension scheme was a prerequisite as a country developed economically. “A high-income nation must have a sound and sustainable social framework to ensure adequate retirement savings. This involves the public and private sectors’ participation to ensure the nation is prepared for the challenges of an ageing population.”

The eight PRS providers are AmInvestment Management, American International Assurance, CIMB-Principal Asset Management, Hwang Investment Management, ING Funds, Manulife Unit Trust, Public Mutual and RHB Investment Management.

To encourage people to save, Najib said those who contributed to PRS would enjoy income tax relief of up to RM3,000.   Employers would be given tax deductions for contributions above the statutory rate of up to 19 per cent of the employees' remuneration, he added.

   "I urge employers to use PRS to offer  more attractive remuneration packages in the form of higher contributions to their workers' retirement benefits, while giving their workers the freedom to decide on the type of scheme they wish to participate in."

Earlier, Securities Commission chairman Datuk Ranjit Ajit Singh  said: "Although Malaysia has laid a strong foundation for a multi-pillar pension system, the challenges of pension reform remain without a voluntary system in place.
"It is hoped  PRS will address the gaps and provide an alternative platform for  retirement savings to complement the existing system." 

Najib launches private retirement schemes

Kuala Lumpur: Prime Minister Datuk Seri Najib Tun Razak today launched the establishment of private retirement schemes, a highly significant move as it provides employees and the self-employed with an additional avenue to save for their retirement.

NSTP/Aizuddin Saad

The first set of schemes comprising 24 funds by several private retirement scheme providers was approved by the Securities Commission and will be available for offer to the public from September onwards.

A private retirement scheme (PRS) is a voluntary retirement savings scheme structured by private sector fund providers which are licensed and approved by the Securities Commission.

"PRS offers opportunities for the rakyat. In the case of the individual, the PRS can provide an environment for individuals to build retirement funds for career mobility, while for employers, PRS may be utilised as a tool for retaining and attracting talent," Najib, who is also Finance Minister, said during the launch of the scheme here.

"I would urge employers to consider using the PRS to offer a more attractive remuneration packages in the form of higher contributions to their workers’ retirement benefits, whilst giving their workers the freedom to decide on the type of scheme they wish to participate in," he added.

Najib said the development of the private pension industry has the potential to change the face of the retirement landscape in Malaysia by increasing and supplementing coverage on a voluntary basis to all sectors of the labour market, including the self-employed and enabling Malaysians to secure an additional and adequate nest egg when they retire. -- Bernama

 

Giving 2 million people a lifeline

  By A. Jalil Hamid  | jalil@nstp.com.my

PRIVATE PENSION SCHEME: Malaysia joins the ranks of developed economies with a fully-fledged system to support the needs of retirees

Government pensioners welcoming the announcement that July 19 would be celebrated as Pensioners Day.

IT could have been a mere coincidence that the official "birth" of the private pension scheme framework was announced the same week as the declaration of Pensioners Day.

From now on, the nation will officially celebrate Pensioners Day on July 19 to show appreciation for their contributions to the country's development.

Just a day before the declaration, Prime Minister Datuk Seri Najib Razak had launched the private pension scheme, marking a much-awaited reform in the country's pension system.

This initiative, which the Najib administration has pursued for a number of years, has finally come to fruition. Malaysia now joins the ranks of developed economies with a fully-fledged pension system to support the varied growing needs of retirees and a growing capital market.

Voluntary private pension, as many put it, is seen as the third pillar of the pension framework. The first pillar is the government's pension scheme and the second pillar is the mandatory Employees Provident Fund (EPF).

You and I are probably in either the government pension scheme or the EPF scheme.

But there are millions of other Malaysians who are not in either scheme. In fact, there are about two million people who are now without any formal pension scheme. They include the self-employed, such as pasar malam traders, shopkeepers and salesmen.

Growing old is by no means easy, especially for private sector retirees with their meagre savings and without much hope of finding a new job. Studies have shown that a majority of EPF contributors exhaust their savings within three to five years upon retirement.

Since the average life expectancy is 80 years, there should be enough money to last for 20 long years if a person retires at 60.

As such, the golden years do not necessarily translate into happy and stress-free days if workers do not plan for their retirement from the start.

Like many other countries, Malaysia is also grappling with how it can afford to continue to provide pensions as its population ages. Government finances will be stretched as the number of pensioners for each taxpayer grows.

One solution is to encourage more workers to save some of their earnings to pay for their retirement.

Well-known and successful private pension fund models can be found in countries like Australia and Chile.

The Australian superannuation pension system has been cited by many industry observers as one of the most successful pension schemes in the world. After over a decade, Australian workers have more money invested in managed funds per capita than any other economy.

In Australia, all wage earners are required to put at least nine per cent of their pretax earnings into a superannuation account. This is now the primary form of tax-advantaged savings for retirement. There are currently about 300,000 superannuation funds in operation in Australia.

The Australian superannuation scheme has increased the national savings rate. It has also promoted the development of a funds' management industry. With the world's 13th largest economy, Australia has the fourth-largest pool of funds under management.

The Malaysian private pension scheme is not modelled after any particular country, but rather based on a framework best suited to the Malay-sian environment.

Among the key components that have to be taken into consideration is the need to have trust and confidence in the pension system.

The whole eco-system, from the private pension fund administrator to the private pension provider and fund managers, have be regulated and supervised because they are dealing with people's retirement money.

Workers will only park their money in a retirement fund if they are confident that their money is safe and will be properly managed.

Private retirement accounts should be reasonably hedged against losses so that any financial crisis will not put the future of too many pensioners on the line. Prudent risk management is critical in managing pension funds.

As Securities Commission chairman Datuk Ranjit Singh mentioned in his speech at the launch of the scheme last week the administrative framework also has to be efficient and the workers should have a good choice of funds and providers to select from.

Since contributors have differing risk appetites, they should have a wide range of funds to suit their retirement needs. There should not be a "one size fits all" approach.

The entry and exit costs should also be minimised and the fund managers should be allowed greater flexibility in investing in any asset classes or markets.

Perhaps the providers should also include in their schemes extensive health and medical benefits to their contributors along the lines of Australia's Medicare.

The government has done its part to help encourage the development of a private pension scheme.

As an incentive, contributors will be able to enjoy income tax relief on their annual contributions, while employers will also be given tax deductions for their employees' salaries in contributions to the private pension scheme made on behalf of their staff.

As the private pension scheme takes root, the prospects for retirees will be relatively secured, with enough money in their hand to enjoy a reasonable quality of life in their golden years

A. Jalil Hamid is NSTP Group managing Editor