The Pros of EPF ?

(cik felcia ques)

EPF's biggest strength lies with their guaranteed minimum of 2.5% dividend per annum. However,
EPF has historically generated annual dividends much higher than 2.5%.

EPF also comes with a maximum of RM6,000 in tax relief, compared with PRS’ maximum of RM3,000.
For 2014; they declared a dividend of 6.75%.

The Cons of EPF

When it comes to the flexibility of investment and contribution, you only get the freedom to select a
partial amount of your EPF contribution to invest as you decide and the contributions are fixed. Since
we are talking about excess, you will need to submit a form to EPF with the additional amount you
want to contribute and this new amount will be deducted from your salary.

However, EPF has historically generated annual dividends much higher than 2.5%; so for most
people, the lack of flexibility isn't so bad.

Withdrawals from your EPF account II are allowed to finance your first home, education for you or
your children or medical expenses.

The Pros of PRS

PRS allows you more flexibility in managing your investment and deciding every month, how much
you would like to contribute. The EPF scheme requires a form filled and the new additional amount
will stay until you request in writing to remove it.

EPF will also decide where to invest your money and will manage the fund for you. Many of those
who have some knowledge investments and yields may want to have more say in how their funds are
invested (within some confines - for more on this, check out our quick PRS guide).

From 2014 to 2018, the government announced they would be giving PRS members between 20 to
30 years old a one-of incentive of RM500 to purchase units of PRS funds to encourage young people
to start saving more for their retirement.

The Cons of PRS

You may have more flexibility in the investment side of things, but you have less flexibility in partial
withdrawals prior to your retirement age.
70% of your PRS contribution is placed in sub-account A and the other 30% in sub-account B.
Withdrawals are only restricted to sub-account B, which you could only withdraw from once a year
and an 8% penalty would be incurred.

Which Should You Choose?(cik ammu ques)

If you want a simple, no frills and risk-free option, voluntary excess contribution to the EPF may be
the better for you to bolster your retirement funds as you are guaranteed a minimum annual
dividend of 2.5% and you don't have to concern yourself with managing the investment.

Furthermore, you get to save a bit of money today with the maximum tax relief amount for EPF
contributions double that of PRS contributions.

If you do not mind doing some research on your own and you have the discipline not to withdraw
your PRS money prematurely, PRS schemes may be the better option rather than voluntary excess
EPF contributions as it has the potential to generate a higher return than EPF and you are allowed
the flexibility of choosing investments based on your risk appetite.