SC To Expand Framework For Introduction Of New Algo-Based PRS Product

Alex Cheong Pui Yin

8th November 2023 - 3 min read

Securities Commission Malaysia (SC) has said that it is expanding the private retirement scheme (PRS) framework in Malaysia so that PRS providers and robo-advisors can soon offer a new type of PRS product to the public, called algorithm-based PRS. Also known as ePRS or digital PRS, this new product is aimed at encouraging more Malaysians – particularly the younger generation – to start saving early for their retirement.

According to the chairman of the SC, Datuk Seri Dr Awang Adek Hussin, the ePRS will offer “an alternative fund type structure” – although he did not specify how the structure will work. He did share, however, that investors who tap into ePRS will be able to make smaller contributions to pre-approved model retirement portfolios. This is in hopes that young investors can start their retirement savings without feeling overwhelmed or financially strained.

Datuk Seri Dr Awang Adek further emphasised that digital solutions – like ePRS – are the way forward as they make investing simpler and more accessible to the masses, especially for those with less financial knowledge. This is as they come with features like automated and algo-driven financial advice.

The SC chairman also noted the importance of improving access to retirement platforms and automating contributions through direct debit, saying that these steps can raise the participation rates of PRS investors. “The ease of saving is a key factor. Hence, the Private Pension Administrator (PPA) is piloting initiatives with PRS providers to increase contribution rates,” he said.

Aside from revealing the upcoming introduction of ePRS, Datuk Seri Dr Awang Adek also applauded the recent launch of target-date funds by PRS providers. Briefly, these funds are specially designed as long-term investments for individuals with a particular goal in mind, which they wish to achieve by a specified date.

Lastly, Datuk Seri Dr Awang Adek highlighted that the PRS industry has shown steady growth since 2018, with its assets under management (AUM) rising by a compounded annual growth rate of 25% from RM2.7 billion in 2018 to RM5.4 billion in 2022. Membership also grew by 40% from 416,000 to 577,000 during the same period – with most members being under the age of 40 years old.

That said, PRS coverage compared to the labour force is still low, and can be improved. “Due to the evolving nature of work and the labour market structure, private retirement schemes must adapt to help more Malaysians meet their retirement needs,” said Datuk Seri Dr Awang Adek, adding that voluntary private pension systems need to be more flexible in their approaches, such as the strategies provided to generate income during retirement, expense management, and the management of potential longevity risks – among other things.

(Sources: Securities Commission, The Edge Malaysia)

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Alex Cheong Pui Yin

Previously covered recruitment-related stories and had a short stint as a copywriter for the property industry. She subsequently developed an interest in investment and robo-advisors.

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