UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF ACCOUNTANCY AND MANAGEMENT

ACADEMIC YEAR 2018/2019
JAN 2019
UKFB3143 PERSONAL FINANCIAL PLANNING AND MANAGEMENT
BACHELOR OF ACCOUNTING (HONOURS)

GROUP ASSIGNMENT: REPORT (20%)

Course Details

Faculty: Faculty of Accountancy and Management

Programme Bachelor of Accountancy (Hons)

Lecture & Lecturer’s Name: L1 Dr. Tan Kok Eng

Tutorial Group & Tutor’s Name: T1 Dr. Tan Kok Eng

Assignment Details

Group of respondent : Banking/ Finance Managers: Millennial group – female;

Non-millennial group – male

Due date : Tuesday, 19 March 2019

Student Details

NAMES STUDENT ID

1) Chuah Chong Ann 1506928

2) Pan Wai Kin 1605474

3) Sia Shwu Min 1605558

4) Sim Sok Hua 1604840

Report overall marks:

UKFB3143 Personal Financial Planning and Management
UNIVERSITI TUNKU ABDUL RAHMAN (UTAR)

FACULTY OF ACCOUNTANCY AND MANAGEMENT

GROUP OF RESPONDENT: Banking/ Finance Managers: Millennial group – female;

Non-millennial group – male

NAMES STUDENT ID

1) Chuah Chong Ann 1506928

2) Pan Wai Kin 1605474

3) Sia Shwu Min 1605558

4) Sim Sok Hua 1604840

Areas of evaluation Marks Marks

Allocated Awarded

Describe the background of respondents 10 marks

Develop retirement plans for the respondents 50 marks

Recommendation of PRS Fund 30 marks

PRS or unit trust Vs. other types of investment 10 marks

Total 100 marks

Total convert to 20 marks

Comments:

___________________________________________________________________________
_____________________________________________________________________

EXAMINER’S NAME: DR. TAN KOK ENG

SIGNATURE: __________________ DATE: _____________

 TABLE OF CONTENTS
No. Contents Page
1 Descriptions of respondents’ background 1-3

1.1 Respondent 1 1–2

1.2 Respondent 2 3

2 Development of retirement plans 4-14

2.1 Respondent 1 4–9

2.2 Respondent 2 10 - 14

3 Recommendation of PRS Fund 15 – 21

3.1 Respondent 1 15 - 18

3.2 Respondent 2 18 - 21

4 PRS vs other investments 22 – 24

5 References 25 – 26

6 Appendix 27 – 35

Appendix 1 – Respondent 1: PRS Fund at age 50 (Calculation) 27

Appendix 2 – Respondent 2: PRS Fund at age 50 (Calculation) 27

Appendix 3 – Affin Hwang PRS Growth Fund – Fund performance 28

Appendix 4 – AIA PAM-Growth Fund – Fund performance 28

Appendix 5 - AMPRS - Growth Fund - Class D 29

Appendix 6 - CIMB-Principal PRS Plus Moderate- Class C 29

Appendix 7 - Kenanga One PRS Conservative 30

Appendix 5 – Respondent 1 (Image) 31

Appendix 6 – Respondent 2 (Image) 31

Appendix 7 – Worksheets 32-

Appendix 8 – Questionnaires
1.0 Describe the Background of Respondents

1.1 Respondent 1

The first respondent for this survey “The Factors Influencing Retirement Planning among

Millennial and Non-Millennial Professional” is fall under millennial category. The

respondent is a Chinese woman who falls in the age group of 23-38 years old. She is a single

woman, who not decides to marry and to have any children in future. Moreover, she is a

degree holder and currently is in the progress toward achieving her ACCA qualification. She

is also holding the position as manager in a bank and planned to retire at the age of 50. The

average life expectancy of her family is 70 years old. Hence, she left 21 years of working life

before she enjoys her retirement life for 20 years.

The respondent has an income level of between RM5,000 and RM6,000. On the other hand,

she has a low monthly expenditure level, which is below RM4,000. Although she has a high

income with low expenditure, but according to her, she has more liability compare to asset.

Currently, she lives with her parents in the home that owned by her parents and decides to

purchase a studio apartment at the age 30 for retirement purpose. The price for the studio

apartment is estimates to be RM300,000 and she will use the money from her EPF account 2

to pay for the down payment and finance the remaining by taking loan from bank.

Furthermore, respondent is a travels lover, she would like to take two additional vacation

trips annually after she retire. Besides that, she also wishes to learn new things or pursue a

new hobby to maintain an active lifestyle in her retirement.

Although currently she has no any medical conditions that she know are going to be costly in

her later life, but she has prepare the unexpected with purchasing many different types of

insurance, such as: life insurance, health insurance and investment link insurance. Fixed

1
deposit is the only investment she currently has. Moreover, she is a balanced risk tolerance

and she has contributed 11% of her total income on retirement plans, which are EPF and PRS.

Lastly, she never expect to receive any other income apart from EPF and PRS income after

she retire, which estimates to be RM300,000 and RM50,000 respectively at the age of 55.

She also estimate to have RM1,000 of financial obligation when she retire. Her minimum

expected monthly income required after retirement is less than RM4,000 and she not expect

her standard of living in retirement will decrease.

2
1.2 Respondent 2

The second respondent for the survey on The Factors Influencing Retirement Planning is fall
under Non-Milennial Professional category. The gender of the respondent is a Chinese man
and his age is 39 years old which fall in category of 39 to 60. He is married and having a one
child, he is having one dependent as his spouse is working. He is graduated from
undergraduate and current job position in the company is unit sales manager. He also holding
the position of mortgage specialist and estate planner in his company. He is planning to retire
at the age of 50 and he expected to enjoy 30 years retirement life before dead.

According to his financial status, his household income is more than fifteen thousand
per month, even though with the higher amount of income, his expenses also very high which
is more than ten thousand per month including the instalment loan paid to bank for housing
and vehicle. Therefore, his liability is more than the asset. Currently, he is living together
with parent as his home ownerships is belong to the family.

In the portfolio part, he chose to invest in fixed deposit and real estate to receive
passive income for currently. Moreover, he also bought an insurance which is life,
investment link insurance, medical insurance as well as child education plan. He cannot
foreseen any huge medical expenses currently as it has bought the medical insurance. So far,
he has housing loan and vehicle loan need to pay back every month. Overall, he feel that
himself in the balance in risk tolerance. He do not have any other retirement plan except
investment linked insurance plan.

3
2.0 Develop Retirement Plans for the Respondents

2.1 Respondent 1

Step 1: Set Goals

Following are the goals that the respondent wants to achieve:

 Retire at the age of 50 years old.

 Create retirement funds to maintain current standard of living after retire.

 Purchase a new home by age of 30 and stay in own house when retire.

 Spend more time with siblings and their families when retire.

 Wish to takes two additional vacation trips annually after retire.

 Wish to try up new things or take a new hobby to make her retirement life meaningful.

Step 2: Estimate How Much They Will Need

RM

A. Present level of living expenditures on an after-tax basis 30,000

B. Times 0.8 equals: Base retirement expenditure in today's dollars x0.80 24,000

C. Plus or minus: Anticipated increases or decreases in living expenditures

after retirement

-Additional 2 trips annual + 15,000

-Try up new things or pursue new hobby + 5,000

D. Equals: Annual living expenditures at retirement in today's Ringgits on an = 44,000

after tax basis

E. Before-tax adjustment factor ÷ n/a

F. Equals: The before-tax income necessary to cover the annual living 44,000

expenses in line D

4
According to respondent, her current annual living expenditure is RM30,000 (RM2,500 per

month). In order to maintain her current standard of living after retirement, we will multiply

this amount with 0.8 to obtain an estimate of her annual living expenses at retirement age in

today’s Ringgit, which would come to RM24,000.

Furthermore, respondent is a travels enthusiast, thus she would like to take two extra vacation

trips every year, which will cost her RM15,000 annually. She also wishes to try up something

new or pursue new hobby which she did not have time to do during her current working life.

But because she still don’t know what types of things or hobby she would like to pursue in

her retirement life, hence she estimate the expenses for this additional activities to be

RM5,000 annually.

There is no tax applicable to the respondent since the respondent only expects to receive

income from EPF, PRS and fixed deposit and all of these are considers to be non-taxable

income.

In summary, the before-tax income necessary to cover her annual living expenses is

RM44,000 annually.

Step 3: Estimate Income at Retirement

RM

G. Income from EPF in today's Ringgits 0

H. Plus: Projected pension benefits in today's Ringgit + 0

I. Other income in today's Ringgits + 0

J. Equal (Lines G+H+I): Anticipated retirement income, in today's dollars = 0

5
In this step, the income from EPF will be zero as the respondent decide to withdraw the EPF

in full amount instead of annually when she reach the age of 55 years old (we will discuss

this further in step 5). Furthermore, there is also no any projected benefit or income the

respondent will be received annually at retirement. Hence, the anticipated retirement income,

in today’s dollar for the respondent is RM0.

Step 4: Calculate the (Annual) Inflation-Adjusted Shortfall

RM

K. Anticipated shortfall in today's Ringgits (line F minus line J) = 44,000

L. Inflation adjustment factor, based on anticipated inflation rate of 4% x 2.279

between now and retirement with 21 years to retirement

M. Equals: Inflation-adjusted shortfall (line K x line L) = 100,276

The before-tax income level the respondent need is RM44,000 (refer to step 2), whereas the

anticipated retirement income level available is RM 0 (refer to step 3). Thus, make up a

shortfall of RM44,000 at retirement.

Inflation can affect the level of future shortfall and erode purchasing power, hence in order to

determine the shortfall will be when the respondent retire, we will project RM44,000 into the

future by assume that the inflation rate over the next 21 years will be 4% annually. Hence, the

inflation-adjusted shortfall would come to a total of RM100,276.

6
Step 5: Calculate How Much You Need to Cover This Shortfall

RM

N. Calculate the funds needed at retirement to cover the inflation- = 15.016

adjusted shortfall over the entire retirement period, assuming

that these funds can be invested at 6.9% and that the inflation

rate over this period is 4%. Thus, determining the present value

of 20 years annuity assuming a 2.9% inflation-adjusted return.

O. Equals: Funds needed at retirement to finance the shortfall x line M 1,505,744

(line M x line N)

P. Income from fixed deposit in future's Ringgit - 270,000

Q. Income from EPF in future's Ringgit - 300,000

R. Income from PRS in future's Ringgit - 50,000

S. Financial obligation in future's Ringgit + 1,000

T. Equals: Total funds needed at retirement to finance the = 886,744

shortfall

To estimate how much the respondent need to cover the shortfall of RM100,276, which we

have calculated in previous step, we need to take into consideration of the effect of inflation

on rate of return. In her case, we assume her investment can be invested at 6.9% and the

inflation rate over the retirement period (20 years) will be 4%, hence the inflation-adjusted

return is determine to be 2.9% (6.9% - 4%). The fund needed at retirement to finance the

shortfall is RM1,505,744.

However, this is not the final figure for this step. This is because the respondent has the

intend to withdraw the lump sum amount from her fixed deposit which is estimate to be

7
RM270,000 at the age of 50 to cover her initial 5 years retirement expenses, and EPF and

PRS which expected to be RM300,000 and RM50,000, respectively when she reaches the age

of 55. Furthermore, the respondent estimate to settle her final instalment of her retirement

house, which estimated to be RM1,000 after she withdraw her fixed deposit from bank.

Hence, the total funds needed at retirement to finance the shortfall are RM886,744.

Step 6: Determine How Much You Must Save Annually between Now and Retirement

RM

U. Future-value interest factor for 5 years, given a 6.9% = 1.396

expected annual return

V. Equals: Total funds must be saved for 21 years of working Line T 635,204

life divided by

line U

W Future-value interest factor for an annuity for 21 years, given = 44.349

. a 6.9% expected annual return

X. Equals: PMT, or the amount that must be saved annually for Line V 14,323

21 years and invested at 6.9% in order to accumulate the line divided by

O amount at the end of 21 years line W

Since PRS can only be withdraw when the respondent reach the age of 55 and she will have

no income after age of 50, so during this period she will not contribute any money into PRS

but will still gain interest for these 5 years. So to estimate how much the respondent need to

accumulate when she reach the age of 50, we need to take the effect of interest during these 5

years into consideration. Therefore, the respondent need to save a total of RM635,204 in 21

years which is between now and when they retire at the age of 50. In order for the respondent

to achieve this amount, we need to takes the rate of return, which is 6.9% into consideration.

8
As a result, the respondent must save RM14,323 each year at 6.9% to meet her retirement

goal.

Step 7: Put the Plan in Play and Save

In order for the respondent to save RM14,323 each year (Step 6, line X), we would like to

suggest the respondent to invest in Affin Hwang PRS Growth Fund and AIA PAM-

Growth Fund which gives 7.61% and 5.69% of interest respectively. The respondent need to

deposit RM1,195 every month or RM14,340 every year to the account to get a return of

RM635,889 on her age of 50 and interest of RM250,855 at her age of 55. Thus, she will

received her total investment with interest of RM886,744 (635,889 + 250,855) at age 55.

Both of the funds providers offer different categories of fund and these two are Growth type

under Core fund and seek to increase return through capital growth. Due to the funds are

aggressively in nature, both are investing portfolio with bias towards equities. Other than that,

they also invest in equity-linked instruments as well as at least 30% of NAV of the fund in

fixed income instruments to maintain a sufficient level of cash and cash equivalent for

liquidity purpose. The local fixed income instruments they choose to invest are mainly having

ratings of at least “BBB” or “P2” by RAM or equivalent rating by other credit rating agencies.

Both of them use benchmarks to compare their fund performance. Affin Hwang PRS Growth

Fund overall performance is achieved above the benchmarks (Appendix 3), and AIA PAM-

Growth Fund is slightly lower but almost close to the benchmarks (Appensix 4). Affin Hwang

PRS Growth Fund distribution policy is fund will be declared to distribution on annual basis

after its financial year, but subject to income availability. While, the AIA PAM-Growth Fund

distribution is incidental.

9
2.2 Respondent 2

Step 1 : Set Goals

Respondent 2 has set specific goal for how much that he need to save for retirement. The
goals of that he set for his retirement plan is monthly retirement income should be around
RM 20,000. He would like travel to overseas with his wife 2 times per year and settle all his
loans at retirement age. Moreover, his child is 20 years old at the age of his retirement (50
years old), he also set goal to have minimum RM 80,000 for his child’s higher education fees.
Besides, he also would like to run a homestay after he retire to generate more retirement
income.

Step 2 : Estimate how much you need

RM
A. Present level of living expenditures on an after-tax basis 168,000
B. Times 0.8 equals: Base retirement expenditure in today's dollars X 0.80 134,400
Plus or minus: Anticipated increases or decreases in living
C.
expenditures after retirement
 Additional 2 overseas trips annual + 40,000
Equals: Annual living expenditures at retirement in todays's
D. = 174,400
Ringgits on an after tax basis
Before-tax adjustment factor, based on average tax rate of 28%
(USE TABLE). This is used to calculate the before-tax income
necessary to cover the annual living expenses in line D. In this
E. ÷ 0.720
case, assume an average tax rate of 28%. Thus, line F, the
before-tax income =line D/line E, where line E= (1-average tax
rate)
Equals: The before-tax income necessary to cover the annual
F. 242,222
living expenses in line D

Currently, the annual expenditure on after tax basis of Respondent 2 is around RM 168,000.
The living expenditure is including the housing loan, vehicle loan, living expenses, life
insurance, investment linked insurance, child education saving plan and transportation cost.
The total amount of his annual living expenditure after retirement is estimated 80% of the

10
current living expenditure, which is RM 134,400. When reach the retirement age, the burden
will become less as the loans is almost payback.

Moreover, as one part of his retirement goals, he would like to have 2 overseas trip
with his wife annually. He estimated that he needs RM 40,000 annually to cover the
travelling expenses. Therefore, annual living expenditure at his retirement after tax basis is
RM 174,400. Estimated the tax rate is 28%, thus the before-tax income used to cover the
annual living expenses is 72% of the RM 174,400. In the other words, Respondent 2 need
RM 242,222 annually before tax income to cover the annual living expenditure at retirement.

Step 3: Estimate income at Retirement

RM
G. Income from investment plan in today's Ringgits 120,000
H. Plus: Projected pension income in today's Ringgits + 0
I. Other income in today's Ringgits (Rental income) + 120,000
J. Equal Anticipated retirement income, in today's dollars (G+H+I): = 240,000

Respondent 2 is investing in real estate to receive rental as retirement income. He estimates

that he could receive RM 120,000 from rental income and he also estimates that he could
receive around RM 120,000 from investment plan.

Step 4: Calculate the (Annual) inflation-adjusted shortfall

K. Anticipated shortfall in today's Ringgits (line F - line J) = 2,222

L. Inflation adjustment factor, based on anticipated inflation
rate of 4% between now and retirement with 11 years to x 1.539
retirement
M. Equals: Inflation-adjusted shortfall (line K x line L) (line K x line L) = 3,420

Assume that the inflation rate between the now and Respondent’s retirement age is 4% . In
the other words, to get the amount of money that Respondent need to save for retirement to
cover the living expenditure, inflation rate needed to be included. Inflation-adjusted shortfall
is RM 3,420 after adjusted the inflation rate between now and 11 years to retirement with
anticipated shortfall in today's Ringgits RM 2,222.

11
 Step 5: Calculate How much you need to cover this shortfall over the number of years
you expect to be retired (assuming an inflation-adjusted return of 1% [return (5%)
minus the inflation rate (4%) during your retirement period, with retirement
anticipated to last 30 years)

N. Calculate the funds needed at retirement to cover the inflation-

adjusted shortfall over the entire retirement period, assuming x
that these funds can be invested at 5% and that the inflation rate line
over this period is 4%. Thus, determining the present value of M
25.808
30 years annuity assuming a 1% inflation-adjusted return. =
O. Equals: Funds needed at retirement to finance the shortfall
88,263
(line M x line N)
P. Loan settlement in future's Ringgit + 2,000,000
Q. Homestay renovation in future's Ringgit + 180,000
R. Income from investment link insurance in future's Ringgit - 800,000
S. Fixed deposit (deposited RM 1000 monthly) in future's Ringgit - 300,000
T. Income from Child Education Plan in future's Ringgit - 80,000
U. Equal : line O + P + Q + R + S + T = 908,263

From the calculation above with assumption that inflation-adjusted return is 1%, Respondent
estimated need to have extra RM 88,263 to finance the shortfall which is 25.808 times of the
yielding inflation-adjusted shortfall.

Besides, Respondent estimated need to settle RM 2 million bank loans at the

retirement age. He currently live together with his parent, spouse and child in the home that
he bought. He planned to renovate the previous house that owned by his parent to become
homestay. He estimated that he need RM 180,000 for renovation and cost of furniture
purchase. As mentioned in demographic, Respondent is investing in investment link
insurance and fixed deposit. He is investing in Great Eastern Unit Trust with medical
insurance coverage and he expected he could receive around RM 800,000 at retirement age
(50 years old). Furthermore, he and his wife started saving RM 1,000 monthly into fixed
deposit account in year 2009, thus he expected to receive roughly RM 300,000 fixed deposit
income at his retirement age.

12
 Furthermore, he also bought child education plan when his child was 3 years old. He
estimated that after 17 years when his child is 20 years old, he could receive RM 80,000 from
the education plan. The education plan able to help Respondent to achieve the goal for
retirement. At the same time, he also encourage his child to apply for the government student
loan to pay for the education fees in the future while the income from the education plan is to
pay for the child’s living expenses.

As conclude, Respondent still need RM 908.263 to finance the future expenditure

after the retirement.

Step 6: Determine how much you must save annually between now and retirement (11
years until retirement and earning a 5% return) to cover the shortfall

V. Future-value interest factor for an annuity for 11 years, given a

5% expected annual return( FVIFAs are found in appendix c) 1.710
W. Equals: Total funds must be saved annually for 30 years of
working life 531,055
X. Future-value interest factor for an annuity for 30 years, given a
5% expected annual return 66
Y. Equals: PMT, or the amount that must be saved annually for 30
years and invested at 5% in order to accumulate the line O
amount at the end of 30 years 7,993

As seem rules to withdraw PRS funds is when the respondent 2 reach the age of 55

but since he estimated he will be retired at age of 50, so during this period of 5 years she will

not contribute any income into PRS. So to estimate how much the respondent 2 need to

accumulate when she reach the age of 50, we need to take the effect of interest during these

11 years from his age of 39 to 50 years which is 5% into consideration need. This allow him

to save amount up to RM531,055 per annually in order to maintain 30 years retirement life

standard when after his age of 50. In order respondent to achieve this amount, we need to

13
take rate of return which is 5% and calculation result may see respondent need to save

RM7,993 to achieve his retirement goal.

Step 7: Put the Plan in Play and Save

To achieve saving RM 7,993 each year (Step 6, line X), we would like to suggest the

respondent 2 to invest in AMPRS GROWTH FUND CLASS D, CIMB-Principal PRS

Plus Moderate- Class C and Kenanga One PRS Conservative which gives 5.33%, 5.29%

and 3.87% of interest respectively. The respondent need to deposit RM 666 every year to the

account to get a return of RM44,090 on her age of 50 and interest of RM531,055 at her age of

55. Thus, she will received her total investment with interest of RM908,263 (531,055 +

377,208) at age 55. All of funds recommended providers offer different categories of fund

and these two are Growth type of fund and seek to increase return through capital growth and

more will take higher risk. Due to that, they also invest in equity-linked instruments and fixed

deposit to maintain a sufficient level of cash and cash equivalent for their future liquidity

purposes. The local fixed income instruments they choose to invest are mainly having ratings

of at least “BBB” or “P2” by RAM or equivalent rating by other credit rating agencies. Both

of them use benchmarks to compare their fund performance. Also same as three funds we

suggested, AMPRS-Growth Fund- Class D and CIMB-Principal PRS Plus Moderate- Class C

have overall performance is achieved above the benchmarks (Appendix 6 and Appendix 7),

and Kenanga One PRS Conservative is slightly lower performance but almost close to the

benchmarks. (Appendix 5)

14
3.0 Recommendation of PRS Fund

3.1 Respondent 1

Based on the retirement plan development, it is suggested that respondent 1 could invests in

two Private Retirement Scheme (PRS). The respondent currently has invested in Affin

Hwang PRS Growth Fund since 2018 by Affin Hwang Asset Management Berhad, the first

provider to launch PRS. This fund is selected based on relevant Core Fund that corresponds

to age group by default allocation (below 40 years old – Growth Fund, 40 to 50 years old –

Moderate Fund, 50 years old and above – Conservative Fund) (Affin Hwang, 2018). She has

invested an initial contribution of RM1,000 only and have no any subsequent contribution.

The objective of this fund is to generate capital growth. Since the respondent is still young,

her current PRS fund is suitable for her financial goals, hence it is suggested that she could

have her subsequent contribution of RM717 per month ( RM8,604 / 12 = around RM717 ) in

order to finance living expenses in her retirement life (estimates RM44,000 / 12 = RM3,667

monthly at present value). The estimate of subsequent contribution is calculated by referring

on the average total return rates from 2013 to 2017, which the percentage taken into account

of this calculation is 7.61% [ (14.64+2.65+1.38+9.15+10.22) / 5 ] (Affin Hwang, 2018). This

estimation on yearly contribution of RM8,604 is within the scale of her annual income, it is

assumed that this amount is not an extra burden in subsequent living life. Also, the returns of

this fund are higher than the benchmarks as compared for the five years of percentage 2 to 60

[ 1- (return rate of funds / return rate of benchmarks x 100%) ] (Affin Hwang, 2018). The

benchmarks used as a comparison are 35% FTSE Bursa Malaysia Top 100 Index, 35% MSCI

AC Asia ex Japan Index, and 30% Maybank 12-Month Fixed Deposit Rate (Affin Hwang,

2018). Affin Hwang PRS Growth Fund is good at convincing when compared with this high

profile figures. The asset allocation of this fund is 0% - 70% on equities and equity-linked

instruments, 30% - 100% on fixed income instruments on local market as well as foreign

15
market to increase the portfolio’s investment opportunities (Affin Hwang, 2019). Not to

mention, their minimum contribution is as low as RM 100 for the initial and RM 50 for the

subsequent. There is no sales charge, redemption charge, and switching fee, but only will

charge a transfer fee when transfer the fund to another private retirement scheme provider at

RM 25. This fund is also charge an amount for annual management fee up to 18% per annum

of the Net Assets Value (NAV) of the fund, the higher risk is the fund, the higher interest

charge on the management fee. Moreover, the declaration of distribution is on yearly basis

after the financial year end on 31st July, the entire distribution fund will be reinvested

automatically based on the distribution policy (Affin Hwang, 2018). After analysing the

details of Affin Hwang PRS Growth Fund, it is recommended that respondent 1 shall

continue to invest in this current PRS, and there is no necessary she will need to switch the

PRS fund since it is at the highest rating (5 star) from Morningstar Rating (PRS, n.d.).

However, the above PRS fund are able to support her finance at retirement age for

approximately 60%, hence it is suggested that she can invest in another PRS fund in order to

save enough until age 55. The other fund proposed is AIA PAM-Growth Fund provided by

AIA Pension and Asset Management Sdn. Bhd. The average return since its inception (2013

– 2018) is 5.69% (AIA Pension and Asset Management Sdn. Bhd. [AIA], 2018). Respondent

1 is recommend to invest 9.19% of her salary which is RM478 monthly ( RM5,736 annually ).

AIA-PAM Growth Fund’s returns are nearly the same as its benchmark (refer to Appendix 1)

which is 30% FBM 100 Index, 30% MSCI AC Asia ex-Japan Index, and 40% Quant Shop

MGS (AIA, 2018). Their investment strategy is they will invest the fund in local and foreign

equities for potential growth, but minimum 30% of its NAV will invest in local fix income

instrument with at least credit rating “BBB3” (AIA, 2018). According to their annual report

ending at April 2018, the fund is underperformance by 2.84% compared to its benchmark.

The main reason caused this performance figure is poor sector allocation and stock selection

16
in local equities (AIA, 2018). Even though they have performed less than expected at 2018,

but from their annual report, they are aggressively optimize the market to increase the growth

in capital. They also disclose their going forward strategy, asset allocation, as well as

performance details of the fund. Since they have details disclosure annually, it boosts the

confidence of investor to invest in this PRS fund. Another supporting factor is it has a rating

of 3 stars according to the evaluation machine, Morningstar (PRS, n.d.). The reason of not

choosing the other fund such as AIA PAM-Moderate Fund which given a 5 star rating is,

their Growth Fund provides more positive return (as at 13 March 2019) in the view of

different period: 1 day, 1 week, 1 month, 3 months, and 6 months. Also, the Growth Fund is

aggressively allocating the fund for an increase in capital growth. They are favouring new

economy and technology stocks, as the expectation is to earn the benefit from the Internet

revolution and mobile phone usage which is widely consumes nowadays (PRS, n.d.).

The total contribution in PRS in order to save enough for retirement is RM1,195 monthly,

which is roughly 23% of her salary. Although it seems the contribution is accounted for quite

a major of the salary, but it is more than enough of her monthly spending habit. The balance

after deducting monthly expenses and contribution in PRS fund, there is an excess of around

RM1,500 to be left. For Affin Hwang PRS Growth Fund, Respondent 1 contribute RM8,604

annually with rate of return of 7.61% will earn RM414,436 (Appendix-W1) in total at her age

of 50, while contribute RM5,736 annually in AIA PAM-Growth Fund with return rate of 5.69%

will earn RM221,453 at her age 50. Since the respondent do not prefer investing in more

categories of investment, the above two PRS funds are given a total earnings of RM635,889

(Appendix-W1) that is higher than the estimated fund needed at retirement, it is sufficient for

her retirement expenses if savings accordingly. Since, PRS fund only can withdraw at age of

55 or else a penalty will be incurred, and respondent will not continue to contribute into PRS

fund at her desire retirement age of 50, the five years interest will gain a total of RM250,855

17
(886,744 – 635,889) which is sufficient in return when reach age 55. At her age 50, the fixed

deposit will be withdrew and is sufficient to cover for 5 years living expenses.

3.2 Respondent 2

Depend on the situation of the respondent 2, we had develop platform for him before

retirement and after retirement on investing in 3 types of fund such as equity, conservative

and moderate. Currently, he has been investing in the investment link insurance and fixed

deposit. Since he is still investing in both equity funds, he is strongly recommended to invest

into more in conservative and moderate fund. As seen on the portfolio allocation, 25% invest

in equity funds, 40% for conservative funds and 35% for moderate funds.

We also do analyse that there are 3 different sub-types on equity, conservative and

moderate funds offers by 8 PRS provider fund to enable him to cover his shortfall in future.

First one is the AMPRS Growth Fund Class D. It is one of the riskier funds but also can

earn the highest return compare to conservative and moderate funds. (LifePoints® Funds) .

This explains on the Principle 8: Risk and Return go hand in hand, meaning the risk and

return are interrelated and have contrary relationships between each other. Their assets

allocation based on maximization of 70% in fund’s NAV in equity and equity-related

securities and 30% in the debentures or fixed income and money market instruments and also

a minimum 1% of the fund’s NAV in liquid assets. (AmPRS, 2018, p. 3) It also is one of the

funds that allow respondent which in age if below than 40 years old to invest. Since the

respondent 1 is still in average of scope, this current PRS is mostly suitable for him to take a

risk earn higher return before retirement.

We suggested he could contribute RM 166.52 per months (refer Excel) to allow him

to achieve adjusted inflation of retirement fund which is about RM2,222. This calculation of

estimated investment fund is based on the average return rates of funds provided in annual

18
report, it have average return of 5.33% and compare it exceed the benchmark average return

of 4.86, this shown it have best performance of equity fund among PRS provided funds.

(Annual Report AmPRS-Growth Fund, 2018, p. 4) Also, according to Bloomberg collection

data, it does have positive 4 years average of Sharpe ratio which is 0.54 (refer Excel). A

portfolio with a higher Sharpe ratio is considered superior relative to its peers. (Definition of

'Sharpe Ratio') So, basically this PRS fund has high potential return above risk will be

expected incurred by respondent 2.

As in term of fee of the funds, it has minimum initial contribution up to RM1,100 for

opening PRS accounts and additional contribution need up to RM200. Even though it don’t

have any redemption charge and switching fee, but it have up to 3% of sales charges and

minimum charges RM25 for transfer fee to another private retirement scheme provider at RM

25. To highlight that it also have charge an amount for annual management fee up to 1.5%

per annum of the Net Assets Value (NAV) of the fund, and annual trustee fee of 0.04% per

annum of NAV. As their fee is quite expensive compare to others funds but it does provided

some beneficial such as income of fund exempted from Malaysia income tax and have able to

claim personal tax relief up to RM3,000 per annum. (Public Mutual Private Retirement

Scheme (PRS) – Conventional Series, 2018)

Even though investment in equity funds does able not to cover up his finance

retirement age, which is approximately only 30% of his portfolio. So, therefore he is strongly

suggested to invest into another fund such as the CIMB Principal PRS Plus Moderate

Class C which is offer by the CIMB Principal Asset Management. As their benchmark is 60%

of FTSE Bursa Malaysia Top 100 + 40% Quant shop MGS Short Index. Their investment

allocation is basically investing in diversified portfolio of equity and fixed income

instruments. (CIMB-Principal PRS Plus Moderate - Class X, 2019) So, respondent 2 is

needed to invest 1.78% of his salary which is RM266.43 monthly (refer Excel). This reason is

19
clearly shown on the fund annual report, their average return of five years is about 5.29%.

(CIMB-PRINCIPAL PRS PLUS MODERATE - CLASS C, 2019, p. 6) Also, according to

Bloomberg, the fund has a positive Sharpe ratio of four years which is 0.25 (refer Excel).

Therefore, it is considered to be acceptable for the respondent 2. Since they have details

disclosure annually, it boosts the confidence of investor to invest in this PRS fund.

As in term of their fee of CIMB- Principal PRS Plus Moderate- Class C, it have

minimum of initial investment which is RM1,000 for opening the account and need incurred

fees of RM100 for subsequent investment. Investor also will be charge on 1.55% of annual

management fee and 0.015% which is around RM6,000 per annum of the funds NAV and

have a basic normal transfer fee of RM25 as well management fee of 1.5% per annum of fund

NAV. Even many fees incurred in this investment but what good news are there no

redemption charges and switching fees will be incurred by investors.

Next one is Kenanga One PRS Conservative Fund is one the fund that cover

approximately 35% of the portfolio. This fund is offer by the PRS provider of Kenanga

Investors Berhad and their benchmark is based on of all Malaysian Government Securities

(“MGS”) Index (80%) and FTSE Bursa Malaysia 100 Index (“FBM 100”) (20%). Their asset

allocation minimum 80% of the fund’s NVA in fixed income instruments and money market

instruments with minimum 20% of the fund’s NAV. (ONEPRS SCHEME, 2019) As we

analyze the average return of the funds in term of 5 years which is 3.87

(3.88+4.27+3.1+5.77+2.34/5), we suggest respondent 2 need contribute roughly of

RM233.13 monthly (RM 2,798 annually). The reason suggested this fund due to it have

average return exceed the benchmark of 3.11. As seem overall performance of the fund is

well due to none of each year has underperformance return. (Kenanga Oneprs Conservative

Fund, 2018) Besides that, they have Sharpe ratio of year 4 of 0.21 (refer Excel). This all

point’s states the main confident of investors put safe invested in fund.

20
 For the Kenanga One PRS Conservative Fund fee, it also same as CIMB- Principal

PRS Plus Moderate- Class C with have minimum of initial investment which is RM1,000 for

opening the account and need incurred fees of RM100 for subsequent investment. Investor

also will be charge on 1.55% of annual management fee and 0.015% which is around

RM6,000 per annum of the funds NAV and have a basic normal transfer fee of RM25 as well

management fee of 1.5% per annum of fund NAV. Even many fees incurred in this

investment but what good news are there no redemption charges and switching fees will be

incurred by investors.

The total contribution in PRS in order to save enough for retirement is RM 666 monthly (RM

7,993 annually) , which is roughly 4.44% of her salary which can be said didn’t exceed as the

answers fill by respondent 2 in questionnaire. The balance after monthly income deducting

monthly expenses and contribution in PRS fund, there is an excess of around RM14,924

(refer Excel). For AMPRS- Growth Fund, Respondent 2 contribute RM1,998 annually with

rate of return of 5.33% will earn RM 28,883 (Appendix 2) in total at her age of 50, while

contribute RM3,197 annually in CIMB Principal PRS Plus Moderate Class C with return rate

of 5.29% will earn RM46,113 (Appendix 2) at her age 50. Lastly for the Kenanga One PRS

Conservative Fund , he need contribute RM 2,798 annually with the return rate of 3.87 to

earn RM37,482 (Appendix 2) after 11 years onward until he retire. Since the respondent is

one of risk averse of investment and don’t prefer to invest more other investment, the above

three PRS funds are given a total earnings of RM531,050. As per rule, PRS fund only can

withdraw at age of 55 or else a penalty will be incurred, and respondent will not continue to

contribute into PRS fund at her desire retirement age of 50, the five years interest will gain a

total of RM377,208 (908,263-531,055) which is sufficient in return when reach age 55.

21
4.0 PRS or Unit Trust Vs. Other Types of Investment

Private retirement scheme (PRS) was introduced by the Malaysia government in 2012, which

was a result of recommendations made by Securities Commission in Malaysia to support the

private sector employees to prepare for retirement (Ali, Yeon, & Hussain, 2016). This was

mainly due to less than 40% Malaysians are financially prepared to retire.

In our opinion, PRS is a most appropriate investment for retirement.

First of all, PRS only allow member to withdraw the money when members reached the age

of 55 years old while the pre-retirement withdrawal from sub-account B is limit to once a

year and 8% tax penalty on the withdrawal amount will be incurred. Hence, PRS is an

appropriate investment for retirement planning. You may be wondering why less flexibility in

withdrawal of money is good. Well, this is because the restriction and penalty able to shapes

members’ saving behaviour positively and avoid them from overspending. Furthermore, this

also able to ensure the members have accumulate enough of saving to meet their retirement

needs as their EPF contribution is no longer sufficient to last for a minimum of 20 years of

their retirement life due to the increasing of life expectancy and rising cost of living. On the

other hand, if people invest in other investment, such as liquid stock, which they able to

convert their stock into cash easily, then people will tend to convert their investment into cash

before they retire and use up on unnecessarily things, such as: purchase new model of hand

phone and car. In summary, investing in less flexibility withdrawal plan, such as, PRS, will

ensure they have sufficient saving in their retirement life.

According to Principle 4 of personal finance- Taxes Affect Personal Finance Decision, tells

us, we should know the effect of taxes on the rate of return of investment and compare

investment alternatives on an after-tax basis. Hence, PRS is one of the appropriate

investments for retirement planning. This is because the income received from PRS fund are

22
fully tax exempted. Furthermore, from 2012 until 2021, the members of PRS can also enjoy

up to RM3,000 of individual tax relief for each year. For example, if the member earning a

yearly salary of RM72,000 (RM6,000 per month), with a tax rate of 21%, it able to help the

member to minimize RM630 (RM3,000*21%) of tax payment per year. Hence, there is a

guaranteed return of 21% from investing PRS and of course, the higher the income of the

member, the higher the saving the member will enjoy. Furthermore, the continuous

commitment in PRS will also lead to higher accumulated tax saving. However, not all

investment income is tax exempted. For example, investment income that derived from

renting property is taxable under Income Tax Act 1967 whereas selling off the property is

also taxable under Real Property Gain Tax (RPGT). Thus, PRS is one of the appropriate

investments for retirement planning.

In addition, according to principle 8 of personal finance-Risk and Return Go Hand in Hand,

tells us, diversify investment by spreading money in several investment will able to help us to

reduces risk. PRS are therefore most appropriate investment for retirement planning. This is

because, PRS has diversifies the risk by purchasing a variety portfolio of stock, fixed income

securities and other permissible assets (FIMM, 2018). However, some other investment, such

as: investing in stock, did not help people to diversify their risk. Furthermore, stock market is

unpredictable, hence, investing in the wrong stock, might lead them to lose everything, which

including the possible of losing their retirement investment principal. Hence, PRS is a good

idea to invest for retirement purpose.

Moreover, PRS is having low charges compare to other type of investment. If the investors

invest in mutual funds not from private retirement scheme, they might need to pay extra 1%-

5.5% of net asset value per unit for the sales charges. However, PRS do not charge any

amount of the sales charge. PRS only charge RM 8 yearly if the investors do contribute to the

account and 0.04% of the admin fees. When the investors would like to transfer transactions,

23
they estimated need to pay RM 25 for each transfer transactions. While the PRS currently do

not charge on any of the transfer fees and pre-retirement fees, it is waived currently until

further notice. Investors need to be aware of the charges that investment providers charge,

because the charges that charged will be the sunk cost and going to borne by the investors.

Furthermore, PRS is affordable for everyone to get started. PRS require low initial

contribution which is averagely from RM 100 – RM 500 based on the PRS providers

(GoBearTeam, 2018). Compare to other investment, the investors might need to prepare a

huge amount of initial contribution. For example, investors are required to have RM 1000 as

initial contribution for the unit trust while RM 3000 initial contribution for fixed deposit. For

the youth today, they might not have huge initial contribution to invest in retirement plan

especially students, therefore PRS is the most appropriate plan for them with low initial

contribution.

To conclude, PRS is the most appropriate investment for retirement as there is less flexibility

in withdrawing money, income received is tax exempted, low charges fee, low initial

contribution and the risk is diversified.

24
5.0 References

Ali, A. N. M., Yeon, A. L., & Hussain, M. A. (2016). Private Retirement Scheme in Malaysia:
Legal Analysis. International Journal of Economics and Financial Issues, 6(S7), 290–
295.

FIMM. (2018). Private Retirement Schemes (PRS). Retrieved February 23, 2019, from
https://www.fimm.com.my/distributors/prs/private-retirement-scheme-prs/

Affin Hwang. (2018, July 2). Affin Hwang Private Retirement Scheme. Retrieved from
http://affinhwangam.com/downloads/fund_documents/phs/PHS_Affin_Hwang_PRS_
Core.pdf

Affin Hwang. (2019, January). Affin Hwang PRS. Retrieved from

http://affinhwangam.com/downloads/fund_documents/brochures/prs_brochure/PRS_
Brochure_ENG.pdf

AIA Pension and Asset Management Sdn. Bhd. (2018). AIA Private Retirement Scheme.
Kuala Lumpur: AIA.

PRS. (n.d.). Fund quick rank. Retrieved from

https://gllt.morningstar.com/e6qvxuu98r/fundquickrank/default.aspx?LanguageId=en-
GB&tab=ShortTerm

PRS. (n.d.). Fund quick rank. Retrieved from

https://gllt.morningstar.com/e6qvxuu98r/fundquickrank/default.aspx?LanguageId=en-
GB&tab=ShortTerm

GoBearTeam. (2018, November 25). 5 Reasons to Consider the Private Retirement Scheme

(PRS). Retrieved from GoBear: https://www.gobear.com/my/blog/5-reasons-to-

consider-the-private-retirement-scheme-prs

AmPRS. (2018, December 25). Retrieved from Fund Super Mart:

https://www.fundsupermart.com.my/fsmone/admin/buy/reports/performanceMYAMP

RSG.pdf

25
Annual Report AmPRS-Growth Fund. (2018, August 31). Retrieved from Fund Super Mart:

https://www.fundsupermart.com.my/fsmone/admin/buy/reports/reportsMYAMPRSG.

pdf

CIMB-PRINCIPAL PRS PLUS MODERATE - CLASS C. (2019, March 15). Retrieved from

FSM One: https://www.fundsupermart.com.my/fsmone/funds/fund-

info/factsheet/MYCPPRS2C/CIMB-Principal-PRS-Plus-Moderate-Class-C

(2019). CIMB-Principal PRS Plus Moderate - Class X. Malaysia: CIMB Principal Asset

Management.

Definition of 'Sharpe Ratio'. (n.d.). Retrieved from The Economic Times :

https://economictimes.indiatimes.com/definition/sharpe-ratio

LifePoints® Funds. (n.d.). Retrieved from Russell Investment :

https://russellinvestments.com/us/solutions/financial-professionals/lifepoints

ONEPRS SCHEME. (2019, January 29). Retrieved from Fund Super Mart:

https://www.fundsupermart.com.my/fsmone/admin/buy/reports/performanceMYK1P

RSC.pdf

(2018). Public Mutual Private Retirement Scheme (PRS) – Conventional Series. Malaysia:

Public Mutual Private Retirement Scheme (PRS) .

26
6.0 Appendix

Appendix 1 Respondent 1 – PRS Fund at age 50

Affin Hwang PRS Growth Fund:

N 21, I/Y 7.61, PV 0, PMT 8,604, CPT FV 414,436

AIA PAM-Growth Fund:

N 21, I/Y 5.69, PV 0, PMT 5,736, CPT FV 221,453

Total: 414,436 + 221,453 = 635,889

Appendix 2 Respondent 2 – PRS Fund at age 50

AMPRS Growth Fund:

N 11, I/Y 5.33, PV 0, PMT 1,998, CPT FV – 28,883

CIMB-Principal PRS Plus Moderate- Class C:

N 11, I/Y 5.29, PV 0, PMT 3,197, CPT-FV – 46,113

Kenanga One PRS Conservative:

N 11, I/Y 3.87, PV 0, PMT 2,798, CPT-FV – 37,482

Total: 28,883 + 46,113 + 37,482 = 112,478

27
Apendix 3 Affin Hwang PRS Growth Fund – Fund performance

Appendix 4 AIA PAM-Growth Fund – Fund performance

28
Appendix 5 AMPRS - Growth Fund - Class D Fund Performance

Appendix 6 CIMB-Principal PRS Plus Moderate- Class C Fund Performance

29
Appendix 7 Kenanga One PRS Conservative Fund Performance

30
Appendix 8 Respondent 1

Appendix 9 Respondent 2

31
Appendix 10 Worksheet

32
33
34
Appendix 11 Questionnaires

35