Under the revised 2023 budget, pension payment for the year would amount to RM31.08 billion, about 8.05% of the country’s operating expenditure.
Under the pension scheme, a legacy of British rule in Malaya, civil servants and policymakers receive a government-funded stipend every month upon retirement.
Upon the demise of the pensioner, the spouse continues to receive the payment until his or her death.
According to Universiti Malaya’s Social Wellbeing Research Centre director Norma Mansor, there are 731,785 recipients of civil service pension currently.
“But this is still a small percentage of the 3.7 million older persons in the country,” she told FMT Business.
However, she said, the current system may not be sustainable in the long run as life expectancy in Malaysia rises.
Retirement income for all
Norma has proposed two possible reforms to enhance social protection without over-burdening the country’s finances.
Firstly, the public-funded pension system can be converted into one based on a contributory model just like the Employees Provident Fund, she said. That would require future civil servants to contribute to their own retirement fund.
This scheme, she said, should only affect future civil service recruits.
However, Norma said, this should not be limited to civil servants only.
“(The scheme should also be applicable) to those who are self-employed or unemployed, particularly women as many of them are not in the workforce,” she said, adding that the government could make the contributions on behalf of the unemployed.
Norma said the government could also roll out incentives to encourage self-contribution.
“For instance, it could match the contributions made by those who are self-employed or in the non-formal sector with up to 5% of their respective monthly incomes. That would be an incentive for others to contribute to their retirement savings,” she said.
More importantly, she said, part of the savings should be held back and disbursed only on a monthly basis upon retirement as opposed to allowing unlimited or full withdrawal to prevent retirees from quickly using up all their savings and sliding into poverty.
“As you know, people who go for lump sum withdrawals tend to spend all their money and fall into poverty within a few years,” she said.
She highlighted that currently 44% of those in the B40 category are aged 60 and above.
Social pension
Norma said another option is a social pension, which is a regular stream of payments from the government to an individual upon retirement for as long as he lives. This has been implemented in countries such as Thailand and Vietnam.
In Thailand, an individual who reaches the age of 60 will receive 500 baht (RM65) a month. Under the scheme, which was launched in 1998, the sum payable rises with the age of the recipient.
Under the Vietnamese scheme, which was introduced in 2014, a retiree receives the equivalent of US$11.50 (RM54.35) a month until death.
Norma said that in Malaysia, the government could start with small amounts like RM200 to RM300 so as not to put too much of a strain on its finances.
“When we talk about social protection, we cannot just talk about one aspect (civil service pension). All Malaysians should enjoy social protection when they are retired,” she added.
Ticking time bomb
Social policy researcher Edwin Goh noted that the sum allocated for civil service pension is comparable to the RM36.3 billion for the health ministry under the revised 2023 budget.
He also highlighted a discrepancy in the system that, he said, has led to insecurity among future retirees.
For instance, he said, an MP who now earns around RM16,000 a month would only have to work a minimum of three years to qualify for pension but a soldier, who earns RM4,000 to RM6,000 a month must have 20 to 21 years of service under his belt to qualify.
“At their respective salary levels, the MP can retire with a living wage but the soldier will drop into the low-income group, forcing him to continue working to make ends meet,” Goh told FMT Business.
He proposed that the government replenish the retirement savings of those who were forced to make withdrawals to survive during the Covid-19 pandemic.
“Just last year, Petronas posted its best financial results with a net profit of RM101.6 billion and paid RM50 billion in dividends to the government.
“A system should be in place to return a portion of the current and future windfall profits we extract from our country to its people or to the National Trust Fund.
“Instead of spending away the entire dividend every year, the government needs to cultivate its own savings habit to safeguard the future of all Malaysians,” he added.