Now has entered the last month for our income tax planning for year 2013, and no doubt SSPN-i which can bring up to RM6,000 tax relief is one of the major consideration, especially for tax payers who fall in the highest income tax bracket.
The National Education Savings Scheme (Skim Simpanan Pendidikan Nasional, SSPN-i) is setup by the National Higher Education Fund Corporation (Perbadanan Tabung Pendidikan Tinggi Nasional, PTPTN) for the purpose of higher education.
PTPTN is an education financing scheme established for the purpose of providing education financing (government study loan) to Malaysian students pursuing studies in local public or private institutions of higher education.
Over the years, PTPTN has been facing difficulty in getting back the loan repayment from graduated students, and there are RM2.3 billions of unsettled loan as reported in September 2013.
As such, there is little doubt to view SSPN-i to be setup to maintain the cash flow of PTPTN, or new students might not be able to obtain loan from PTPTN as their cash flow dried up.
Back to our question. Does it worth to put saving in Skim Simpanan Pendidikan Nasional (SSPN-i)?
From the income tax saving perspective, if you are in the highest income tax bracket of 26%, and you deposit RM6,000 into the SSPN-i account for your children, you will enjoy a tax relief of up to RM6,000 x 26% = RM1,560.
On top of that, SSPN-i will give tax exempted dividend of about 4% every year. If you only deposit the money in December, you won't get much dividend for this year, and you will need to wait for another year to get your first full-year dividend.
As long as the SSPN-i account has savings of RM1,000 and above, there will be free Group Takaful insurance as below:
- Coverage of RM to RM (dollar to dollar) of up to RM50,000 (general insurance)
- Death benefit / compensation for the depositor (RM2,000) and the beneficiary (RM500)
The depositor must be 18-65 years, and the beneficiary must be 1 day to 28 years.
There is also a matching grant of up to RM10,000 if your family income is below RM2,000 by the time your child is accepted into and registered with a higher education institute recognised by the government.
If you want to enjoy the tax relief again next year, you need to top up your SSPN-i account with additional savings.
Note that once the money is put inside SSPN-i, it is very difficult to withdraw it. You can only withdraw once per year, up to RM500 or 10% of the savings (whichever is lower). You can only close the account with 100% withdrawal when:
- Your child is offered a place in any higher learning institution
- Your child has voluntarily withdrawn from the education system
- Your child has been expelled for a specific reason
- Suffering from an illness certified by a doctor as being incurable
- Experience total permanent disability as certified by a doctor;
- Death of the child
- Death of the depositor
Assuming that you keep your RM6,000 in SSPN-i account for 20 years, your total return, including the income tax savings of 26% relief, is about RM8,200.
In order to see whether it worth or not
to put the savings in SSPN-i, I have expanded the table above to show the accumulated gain every year, and the annualized return in percentage.
As you can see from the table above, it is a good choice to put saving in SSPN-i if your child is above 15 years old and going for tertiary education in 5 years time. You will get the annualized return of approximately 8.6% and above based on 4% dividend rate.
After that, your annualized return will drop due to the low dividend rate, but still comparable to the return rate of Employees' Provident Fund (EPF) which estimated to be around 6% annually.
However, take note that the SSPN-i dividend between 2009-2011 are below 4%:
- 2009: 2.5%
- 2010: 3.25%
- 2011: 3.75%
- 2012: 4.25%
So it is not guaranteed you will get 4% dividend every year.
What if the dividend rate is estimated at around 3% per year? The table will be as below:
It is still a good choice to put your money in SSPN-i with an estimated dividend rate of 3% per year, for a period of below 5 years. More than that, there are a lot of investment instruments for your consideration which can give better return.
What if the estimated dividend rate dropped to 2%? The table will be as below:
Well, I think you won't consider it at that kind of dividend rate if your child is less than 10 years old now.
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