Khor Wei Min examines the proposed framework for Private Retirement Schemes.
 
INTRODUCTION
 
The Capital Market Masterplan 2 (CMP2) was launched by the Prime Minister of Malaysia, Datuk Seri Mohd Najib Tun Razak at Invest Malaysia 2011 on 12 April 2011. Under the CMP2, a new private pension fund framework which facilitates the establishment of private retirement schemes is to be launched by year-end.
 
Following the announcement, the Capital Markets and Services (Amendment) Act 2011 (“Amendment Act”) was passed to amend the Capital Markets and Services Act 2007 (“CMSA”). The Amendment Act became law on 16 September 2011 and will come into operation on a date to be appointed by the Minister of Finance.
 
The statutory provisions referred to in this article are the new provisions which will come into effect when the Amendment Act comes into operation.
 
NEW PART IIIA
 
The Amendment Act will introduce a new Part IIIA (Sections 139A to 139ZM) into the CMSA which provides the framework for the private retirement scheme industry in Malaysia.
 
The new Part IIIA will introduce the following concepts, namely a private retirement scheme, a private retirement scheme provider ("Scheme Provider"), a private retirement scheme administrator ("Scheme Administrator"), a private retirement scheme trustee ("Scheme Trustee"), an employer-sponsored retirement scheme ("Employer Scheme") and an employer trustee of an Employer Scheme ("Employer Trustee").
 
PRIVATE RETIREMENT SCHEME
 
Section 139A defines a private retirement scheme (“Scheme”) as a retirement scheme which is governed by a trust, offered or provided to the public for the sole purpose or having the effect of building up long term savings for retirement for members where the amount of the benefits is to be determined solely by reference to the contributions made to the scheme and any declared income, gains or losses in respect of such contributions.
 
A pension fund approved under Section 150 of the Income Tax Act 1967 and a retirement scheme or fund established by the Federal Government, State Government or any statutory body established by federal or state law are specifically excluded from the definition of a Scheme.
 
Matters relating to approval
 
The approval of the Securities Commission ("SC") is required before a person can establish or operate a Scheme (Section 139V)). Such approval may be given on such terms and conditions as the SC thinks fit. The SC may refuse an application or withdraw its approval for an approved Scheme on the grounds set out in Section 139W and Section 139X respectively.
 
The withdrawal of an approval for a Scheme will not affect a member’s accrued benefits (Section 139ZB(1)).
 
Safeguards for accrued benefits
 
A contribution by a member to a Scheme vests in that member as accrued benefits as soon as the contribution is paid to the Scheme Provider or the Scheme Trustee, whichever is earlier (Section 139Y(1)).
 
A Scheme Provider and Scheme Trustee are prohibited from paying or disposing of any part of the accrued benefits to any member or other person except in the manner specified by the SC (Section 139Z). To further safeguard a member's interest in the accrued benefits, Section 139ZA prohibits the accrued benefits from being taken in execution of a judgement debt or being subject to any encumbrance, transfer or assignment by or on behalf of a member. Any purported disposition which contravenes this provision is void.
 
SCHEME PROVIDER
 
A  Scheme Provider is defined in Section 139A as a person who provides and manages a Scheme.
 
Matters relating to approval
 
Section 139P(1) prohibits a person from establishing, offering or providing a Scheme or from holding himself out as establishing, offering or providing a Scheme unless the SC approves (a) that person as a Scheme Provider under Section 139Q, (b) the Scheme under Section 139V, and (c) the Scheme Trustee under Section 139ZC.
 
The SC may approve an application on such terms and conditions as it thinks fit or may refuse an application on any of the grounds set out in Section 139R. The SC may withdraw an approval granted to a Scheme Provider on the grounds enumerated in Section 139S(1) or on the request of the Scheme Provider under Section 139S(2).
 
Notwithstanding the withdrawal of an approval, the SC may require a Scheme Provider to continue conducting the activities that are affected by the withdrawal on or after the withdrawal takes effect for the purposes of closing down the operations of the Scheme Provider or protecting the interest of the public or the members (Section 139S(4)).
 
The withdrawal of an approval under Section 139S will not avoid or affect any agreement entered into by the Scheme Provider in relation to the Scheme before the withdrawal of the approval or, after the withdrawal of the approval in the circumstances set out in Section 139S(4).
 
Notification of disqualifying event
 
A Scheme Provider is required under Section 139U to immediately notify the SC of the occurrence of any of the events set out in Section 139S, namely events that give the SC the right to withdraw an approval.
 
SCHEME ADMINISTRATOR
 
A Scheme Administrator is a person who performs the function of record keeping, administration and customer service for members and contributors in relation to a Scheme and such other duties as may be prescribed by the SC (Section 139A).
 
Matters relating to approval
 
A person must obtain the approval of the SC before he can be a Scheme Administrator (Section 139B(1)). Such approval will only be granted to a body corporate.
 
The SC may withdraw an approval granted to a Scheme Administrator on the grounds enumerated in Section 139F(1) or on the request of the Scheme Administrator under Section 139F(2).
 
Notwithstanding the withdrawal of an approval, the SC may require a Scheme Administrator to continue conducting the activities that are affected by the withdrawal on or after the withdrawal takes effect for the purposes of closing down the operations of the Scheme Administrator or protecting the interest of the public or the members (Section 139F(4)).
 
As in the case of a Scheme Provider, Section 139G provides that the withdrawal of an approval under Section 139F will not avoid or affect any agreement entered into by the Scheme Administrator in relation to the Scheme before the withdrawal of the approval or, after the withdrawal of approval under the circumstances set out in Section 139F(4).
 
Directors or chief executive
 
Section 139E(1) prohibits any appointment, election or nomination of a director or chief executive of a Scheme Administrator without the prior approval of the SC.
 
To safeguard the interests of members and the public, a Scheme Administrator is required to ensure that at least 1/3^rd of its directors are public interest directors in accordance with the criteria specified by the SC.
 
Duties and responsibilities
 
The duties and responsibilities of a Scheme Administrator include receiving and transmitting instructions in the form and manner specified by the SC, keeping records of all transactions or monies received and paid out and providing information to the Scheme Provider, Scheme Trustee, a member or any other person specified by the SC (Section 139(H)).
 
A Scheme Administrator is required to establish a set of terms of reference approved by the SC to govern the administration of a Scheme Administrator (Section 139I). The terms of reference may not be amended without the prior approval of the SC.
 
Financial and accounting matters
 
Section 139J requires a Scheme Administrator to pay into a trust account all monies received by it in respect of the Scheme and prohibits it from withdrawing the same except in accordance with the written instruction of a person entitled to the monies or for his benefit or otherwise authorised by law.
 
The provisions relating to audit in Sections 126 to 137 of the CMSA apply to a Scheme Administrator.
 
Power of SC to issue directions
 
Where the SC reasonably believes that the interests of the members of a Scheme are likely to be affected, it may issue directives that require a Scheme Administrator to take one or more of the actions specified in Section 139L(1).
 
SCHEME TRUSTEE
 
A Scheme Trustee is a person who acts as a trustee of a Scheme (Section 139A).
 
Matters relating to approval
 
The approval of the SC is required before a person may act or be appointed as a Scheme Trustee (Section 139ZC(1)). The SC may grant the approval on such terms and conditions as it thinks fit. It may also refuse an application or withdraw an approval granted to a Scheme Trustee on the grounds set out in Section 139ZD(1) and Section 139ZE(1) respectively.
 
EMPLOYER TRUSTEE
 
An Employer Trustee refers to a trustee of an employer-sponsored retirement scheme (Section 139A). An Employer Scheme is a retirement scheme established by a corporation for the purpose or having the effect of providing retirement benefits to employees of that corporation or of its related corporation.
 
Matters relating to approval
 
Section 139ZF requires a person to obtain the approval of the SC before he is appointed or acts as an Employee Trustee.
 
The SC may approve an application on such terms and conditions as it thinks fit. It may also refuse an application or withdraw its approval on the grounds set out in Section 139ZG(1) and Section 139ZH respectively.
 
CONCLUSION
 
The provisions in Part IIIA which regulate the activities of a Scheme Administrator are set out in greater detail than those which regulate a Scheme Provider or a Scheme Trustee notwithstanding that a Scheme Provider and a Scheme Trustee have important responsibilities to discharge in relation to a Scheme. Part IIIA also lacks detail in relation to a Scheme notwithstanding that it forms the basis of this new industry in Malaysia.
 
While Part IIIA sets out the approval framework for the main participants in the private retirement scheme industry and outlines some of the duties and responsibilities of a Scheme Administrator, the detailed rights, obligations and responsibilities of the main participants in this industry and the operational details of a Scheme are not laid out in this Part. It is likely that these important details will be laid out in the regulations and guidelines to be issued by the SC.