Govt’s new pension scheme can follow EPF model, says expert

The new scheme under revision may not necessarily pay half of the last drawn salary


THE government’s pension scheme could be modelled after the Employees Provident Fund’s (EPF) structure for workers in the private sector as the government seeks to trim its ballooning administration payments.

Putra Business School business development manager Assoc Prof Dr Ahmed Razman Abdul Latiff said the government could adopt the EPF model including provisions of entitlements, employees’ contributions and withdrawals to make Retirement Fund Inc (KWAP) and the pension scheme sustainable.

“One of the ideas is to treat the current pension scheme just like the EPF. We can increase contributions by employees to KWAP and the fund invests the contributions in the same way the EPF functions.

“KWAP has to figure out which investment strategy to employ, either for commercialisation or strategic purposes. In other words, for an immediate return to serve the annual contribution and for long-term,” Ahmed Razman told The Malaysian Reserve (TMR).

Public Service Department (JPA) DG Datuk Seri Borhan Dolah was reported as saying that new appointments in the public service may no longer be made under the permanent and pensionable scheme from 2020 onwards.

The new government staff would be placed under an improved contract scheme. Putrajaya seeks to save about RM5 billion a year with the new scheme. Pension payments had crossed over RM28 billion and it is straining the government’s finances.

KWAP has been entrusted to manage and process pension benefits for government servants.

Prime Minister Tun Dr Mahathir Mohamad said the government has not decided on a new scheme to replace the existing pension scheme.

Presently, new civil servants will be placed under the EPF scheme until they are confirmed, which normally takes three years. After three years, they are given the options to stay in the EPF scheme or switch to the pension scheme.

Under the EPF scheme, employees have to contribute 11% of their basic salary to the scheme. Employer’s statutory contribution rate is 13% compared to 17.5% contributed by the government’s statutory bodies, local authorities and agencies registered to KWAP under the pension scheme.

The EPF model employs a “defined contribution” concept, while the pension scheme uses a “defined benefit” mechanism.

“The main issue is whether the government can afford the current scheme. The new scheme under revision may not necessarily pay half of the last drawn salary. It could be based on the amount contributed and government servants may be given the options to withdraw or keep the funds, much like in the EPF,” Ahmed Razman said.

With about 1.7 million civil servants, the pension scheme will further add stress to the government’s cashflow.

Malaysian Institute of Economic Research senior research fellow Dr Zulkiply Omar said any new pension scheme must be sustainable just like how the EPF manages its funds.

“It may use the same model as the EPF. I do not see why the retirement plan could not be sustainable. I think the burden is on the employer’s contribution. We may need to look into the scheme and ensure KWAP’s investment is profitable,” Zulkiply told TMR.

There are also calls for a review of MPs who enjoy 50% payment of the last drawn salary even if they serve for just one term. Ahmed Razman said MPs’ entitlement under the pension scheme should be based on the number of years at the Parliament.