* Malaysia liberalising pension market
* Govt sees 73 bln ringgit into private pensions by 2020
* Eight fund managers approved to offer products
* Product limit raised if it includes Islamic offerings
By Bernardo Vizcaino
SYDNEY, July 23 Malaysians will have more room
to allocate part of their retirement contributions to Islamic
investments under sweeping government reforms to the pension
At present, the Employees Provident Fund (EPF) receives
public pension contributions and invests the money. Some of that
investment is in sharia-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 percent 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 sharia-compliant investment -
potentially increasing the amount of money going into Islamic
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.
As of March 31 the EPF managed assets worth 488.5 billion
ringgit ($154 billion), according to company data. That is
larger than the 435.36 billion ringgit 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 73 billion ringgit by 2020 from
effectively zero now, according to a report by the government's
Economic Transformation Programme. The securities commission has
a more modest but still sizeable estimate; in April last year,
it said: "Over the next ten years, it is projected that assets
under management in the private retirement scheme industry will
grow to 30.9 billion ringgit."
Sharia-compliant funds have on average held 10.6 percent 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 3.3 billion to 7.7
All eight of the approved PRS fund managers already have
sharia-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
sharia-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 sharia-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."
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 sharia-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
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
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
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 3,000 ringgit 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."
(Editing by Andrew Torchia)