Wednesday, November 13, 2013

Budget 2014: Up to 61% tax incentives for youths through PRS

This is a guest article and the opinion is strictly from the writer.


Now, I know Budget 2014 is almost 2 weeks ago but I am surprised no one really puts this into perspective.

In fact, many are unaware of this very fact because GST and removal of sugar subsidy stole the limelight.

I am referring to the RM 500 one off incentive (read: almost like cold hard cash) to Private Retirement Scheme  (PRS) contributors with minimum cumulative investment of RM 1,000 - to be implemented from Jan 2014 onwards for a period of five years.

Let me explain.

If you are in the mid to late twenties, chances are that your annual chargeable income falls in the range of RM 35,001 to RM 50,000. The tax bracket for this income group is 11 percent..

That means, your actuals monetary savings for any tax relief eligible to you is 11 percent of the tax relief amount itself.

If you invest RM 1,000 into any of the funds by any PRS fund providers, you get RM 110 worth of tax savings.

With this tax savings of RM 110 and the RM 500 incentive, you are getting RM 610 of tax incentives.

But then it gets even better.

Most of the tax reliefs are “expenses type”, which means you need to spend money to get the tax savings. Things like computer purchase, insurance premiums, etc.

But this PRS contribution is one of the few “savings type”  tax relief. Just like when you invest in any unit trusts or shares, your investment may grow over time.

If you visit Private Pension Administrator (abbreviated PPA - the central administrator for PRS) website now at, and check under Providers > PRS Funds Information > Daily Fund Prices, you can see the investment returns of all PRS funds from all providers.

One of the top performing funds yielded a year-to-date return of slightly more than 18% in just under a year.

Although past performance is not an indicator of future performance, if this performance continues, you are essentially getting RM 180 return out of the RM 1,000 you invested.

Add this up with RM 610 we calculated earlier, you are getting up to RM 790.

That’s 79% return.

Not many stocks could give you a minimum 61% return and up to 79% return within a year.

As an independent financial adviser, I can tell you wealth accumulation is not just about investing. We should always adopt a more holistic approach - this is a very good example of tax savings which indirectly translates into surplus. You could treat this as your investment return which is guaranteed.

Every single savings count. The wealthy mind their money, and they say - “if you don’t take care  of your money, money won’t take care of you”

Even if you don’t qualify for individual BR1M handouts, grab this opportunity highlighted above starting 2014.

This is a community message to all youths by Lieu Ching Foo, the founder of  personal finance blog - 

Note: besides the RM500 incentive for those below 30 years of age, the government has provided tax incentive with relief up to RM3,000 for those who puts in his / her money into PRS, in its budget for 2012. The relief is for first 10 years from assessment year 2012.


felicity said...

Generally from the tax incentives that the government ditched out for PRS, one may want to relook at PRS again.

Not only for youths, for those with high income, some of the PRS scheme has either very low entry fee or nil. The administrative fee is also quite low.

The tax breaks may be worth it.

P.S: AND, I do not sell or invest into retirement scheme myself

LCF said...

Got to agree on the 0% entry fees. A flat rate of 3% charged by a well known PRS provider on all of its funds are just obscene (to date) when some lower entry charge funds have better performance to date

felicity said...

Agreed, fee does not represent better performance it seems.

Wahida Yaakub said...

Great info. Thanks for this.

curiuosct said...

too bad..i am turning 31 comes january 2014..already invest in PRS through sale fee is 0% for PRS

HW said...

only for 30 and below? what if i invest at age 28, does it mean i only applicable for tax relief for 2 years?

Any condition like annual wage not exceed 50k ?

felicity said...

The RM500 incentive is only for those 30 years and below. If I am not mistaken, this is only a one time incentive - hence if you do it before 30 years of age what you will get is the RM500 one time.

If you are not paying any taxes for now, I would think you are still entitled, but better check. However, if you are looking at tax savings, if your income does not require you to pay taxes - the tax savings portion may not be applicable.

Iamwhoiam said...

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