What is the difference between Private Retirement Schemes offered by Unit Trust companies and Deferred Annuity Plans offered by insurance companies?
During the recent webinar I hosted featuring the Managing Director of SAC Wealth Management Sdn. Bhd., K.C.Chong shared about his finding about these new private retirement scheme. Here is what he said:
I have done a comparison between Private Retirement Scheme and Deferred Annuity. We can see that these two categories share the same RM3000 tax relief.
The Private Retirement Scheme is governed under the Security Commission, whereas the Deferred Annuity is governed by Bank Negara Malaysia.
PRS is offered by Unit Trust Companies, whereas Deferred Annuity is offered by Insurance Companies.
With PRS, there are No Fixed Amount of intervals or term of contribution. Here you can put in whatever amount at any time you wish – there’s no fixed amount of interval. For example, let’s say you want to skip one or two years. It doesn’t matter. Whereas for Deferred Annuity, once you fixed the amount, let’s say RM3000 a year, you will have to put it aside for ten years once you decided on it. This, of course, depends on how much or how far you would like to enjoy the tax relief.
Another difference is that the capital not guaranteed if you place your money in the Equity Funds. On the other hand, with Deferred Annuity, annual income is guaranteed.
For PRS many parties are involved: you have a Private Pension Authority, you have the PRS Provider which is a Unit Trust Company, and you also have the Scheme Trustee. This is because the government want the Unit Trust Company to make sure that the trust fund is in good hands. For Deferred Annuity, only the insurance company is involved, which is governed by Bank Negara.
With PRS, the money is subjected to estate freezing. When the money falls into estate after a person dies, you’ll need to bring a GP (Grand of Probate) or LA (Letter of Estate Administration) to unfreeze and withdraw money. With Deferred Annuity you will just need to do a nomination. As it will not be frozen if nomination is done properly, there is no need to bring GP, run a probate, or LA to withdraw money.
Which one is better? PRS or Deferred Annuity plan? It depends on the customer and how he or she wants to make use of the tax relief.
You can watch the full replay here:
chris hii December 22, 2012 at 11:31 am
Can i know e.g. Like great eastern company, which plan is consider annuity plan and can claim tax relief
KCLau December 28, 2012 at 10:44 am
@ Chris, it is called the Great Retirement Plan
Chris Hii January 5, 2013 at 12:48 pm
So for previous saving plan like Elite offer by GE does not encounter for annuity tax relief claim?
Edward January 3, 2013 at 11:05 pm
Which is the best deferred annuity plan out there?
Velan January 19, 2013 at 9:35 am
How about HSBC Takaful annuity schemes? covered for tax relief?
Velan January 19, 2013 at 9:38 am
I thought PRS have feature to declare nominee or beneficary? I think I read it in PRS FAQ at SC website or PPA website.
KCLau January 20, 2013 at 12:04 pm
I am not sure about this. It is better to verify it with the plan providers or PPA
Nick T. April 29, 2013 at 10:51 am
KC, some of your statements are not true. If you are talking about deferred annuity at this moment, then Great Retirement Plan by GE is the only one (if there are others, let me know). For this plan, if you surrender the policy before 55, you will get the 8% tax penalty as well. Like any other non-participating traditional life insurance policies, you can’t withdraw your savings prematurely, else the penalty will be a lot more than 8%. You can reduce your premium though, then again the penalty would also be more than 8%. You are talking about a guaranteed return of about 3%, that’s even worse than FD.
KCLau April 29, 2013 at 9:09 pm
@Nick, I definitely agree with your statement that the return is nothing to be concerned if it is not for the extra tax relief for high income earners.