Malaysia plans to introduce a new pension scheme this year which will see new hires in the public sector contribute to the Employees Provident Fund and the Social Security Organisation.
This is part of the government’s move to phase out traditional pensions which are becoming a financial burden, Deputy Prime Minister Ahmad Zahid Hamidi said at a press conference on January 25. The pension scheme will be part of a new salary plan for government employees.
Civil service pension fund Kumpulan Wang Persaraan (KWAP) currently manages the retirement savings of public sector employees.
Government employees with at least 25 years of service get at least half of their last drawn salaries as monthly pension and those with 30 years of service get 60%.
Ahmad Zahid said the government has allocated 30.5 billion ringgit (US$6.46 billion) for pensions this year and the figure is expected to balloon to around 120 billion ringgit by 2040 without a new salary scheme.
“Therefore, the long-term approach is to implement this new system for newly-appointed civil servants, while the existing ones will continue with the current system, which includes pension benefits,” he said.
He said the new system is expected to be become effective this year and that the implementation dates will be announced by the government’s Chief Secretary Mohd Zuki Ali.
The new scheme will not solve the problem of hefty government spending on public sector pensions, according to Geoffrey Williams, an economics professor at the Malaysia University of Science and Technology.
“The government’s outstanding liabilities will still remain. Payment for civil servants under the existing scheme will still continue,” Williams tells Asia Asset Management.
He says the government should combine KWAP and the Armed Forces Fund with other “low performing” funds such as the National Trust Fund to deal with the issue.
