Financial comfort upon retirement

MY father retired from the civil service way back in 1988 and when he celebrated his 90th birthday last November, he achieved the milestone of having been a pensioner for the last 35 years – equivalent to the number of years he spent in service.

Not surprisingly, his current monthly pension is now more than his last drawn salary. But this is due to increments and raises in the civil service salary structure over the years which also positively impacts pensioners.

My father is part of the estimated 900,000 plus retirees who benefit from the pension scheme, and this is growing by about 32,000 new ones every year.

The government spends a whopping RM31bil on these pensioners, including statutory bodies and the Armed Forces Fund (LTAT).

And it is projected that the government would spend some RM120bil to cover pension payments by 2040 if new salary schemes to hire new civil servants are not introduced. Logically it makes sense for the government to practise better fiscal management and addressing the pension scheme is a big part of this.

Thus, the contract appointment system for new recruitment in the civil service takes effect from Feb 1, meaning that new civil servant hires will no longer qualify for pension. They will instead contribute to retirement funds like the Employees Provident Fund (EPF). With this move, a proposal has been put forward to abolish the civil service pension system and replace it with the EPF.

Predictably, there has been a pushback over this move. Voices from both sides of the divide – opposition and government backbenchers – have called on the administration to shelve the proposal and maintain the status quo.These are some of the criticisms listed:

“Policymakers should ideally consider the well-being of the civil servants.”

“The benefits and privileges of working in the civil service will be reduced.”

“Government jobs will be less desirable.”

But these short-term views detract from a more rational and long-term perspective.

Tourism Minister Datuk Seri Tiong King Sing is of the opinion that the issue has been exploited by certain parties but reforms to the pension system are essential.“Especially now when Malaysia is in the stage of economic transformation. If we want the country’s economic development to break through the bottleneck and boost our competitiveness on the international stage, it is inevitable to implement reforms as the times evolve,” he said.

Tiong believes that if the review of the civil service pension system could, among others, allow for more access to funds to support the disadvantaged, upgrade rural infrastructure, implement development plans, it will go a long way to create betterment for Malaysians.

Detractors of these reforms are also missing the point that pensions of existing civil servants and pensioners will not be affected. It is only those new recruits who will see a change to EPF contributions.

While a complete shift from the pension scheme to a retirement fund is still on the cards, policymakers must also look at other possible reforms.

Chief among them should be paying a reasonable wage to the lowest income earners of the civil service.

Malaysia’s revised national poverty line income is RM2,208, which means that over 400,000 households in the country with monthly incomes below this level are considered poor, according to the Statistics Department (DOSM).

It does not make sense that if our poverty threshold is RM2,200, the minimum wage for the country is RM1,500. There should be a review of the salaries and allowances of civil servants. The last time they were increased was 11 years ago, in 2013.

The government should also consider extending the retirement age from 60 to 62 for starters and eventually 65, which is on par with other developed nations. This will allow civil servants to have a sufficient nest egg in their retirement fund.

Several MPs have already voiced their support for parliamentarians and assemblymen to give up their pensions. MPs like Syed Saddiq Syed Abdul Rahman, Young Syefura Othman, Datuk Seri Dr Wee Jeck Seng and Datuk Seri Hishammuddin Hussein have all indicated their willingness to forgo pensions.

Muar MP Syed Saddiq said it would be extremely unfair to cut the pensions of civil servants if politicians don’t suffer the same fate.

“I propose, firstly, for the government to scrap politicians’ pensions. Civil servants must work for many years to get their pensions, but politicians can get their pensions within five years of winning (an election),” he said.

These changes could happen sooner rather than later as the Prime Minister has said that the review of the public service remuneration scheme will also apply to politicians and political appointees in the country.

For the time being though, the PM is right to call out politicians who benefit from several pension schemes.

Citing instances when some of them get three or four pensions simultaneously, having served as MPs or assemblymen, he said it is “morally responsible” for these elected representatives to reject multiple pensions.