Yeah Kim Leng of Sunway University proposed a scheme involving Employees Provident Fund (EPF) contributions for civil servants. He said it was imperative that the scheme be put in place for new recruits to the civil service beginning next year.
He warned that the country may face a fiscal cliff in the near future if nothing is done now.
“There is an urgent need to reform the current scheme, rightfully to begin with the new recruits because whatever (benefits) committed to the existing civil servants should not be touched.
“It is reasonable (for the government) to consider (such reform) because, under the present scheme, the pension that the government has to bear would continue to balloon to the extent that it will become unsustainable,” Yeah told FMT.
The pension system took up a whopping RM30.5 billion or 8% of this year’s federal budget of RM389 billion, an increase of RM3 billion over the 2021 budget.
Two years ago, then prime minister Ismail Sabri Yaakob predicted that pension payments will hover around the RM46 billion mark by 2030.
Meanwhile, Shankaran Nambiar of the Malaysian Institute of Economic Research (MIER) said the annual budget’s high operating expenditure was largely due to the number of public servants employed.
He said it was best to remove all pensions and replace them with an extensive basic income scheme that exempted those at the upper end of the distribution curve.
“This (basic income plan) should be buttressed with efficient access to public healthcare facilities and a good healthcare financing scheme (for retirees),” he told FMT, adding that the basic income would cover people who have passed the mandatory retirement age and those with no income.
However, Nambiar said “a comprehensive fiscal reconfiguration” of the country is needed to implement the system, which would require the introduction of wealth and luxury taxes.
How this plan is phased in requires careful examination, he added.
Recently, former health minister Khairy Jamaluddin said pensions for parliamentarians and civil servants should be abolished to help stabilise the nation’s finances.
He also suggested that civil servants recruited from next year onwards contribute to the EPF scheme as part of the reform.
Khairy’s suggestion drew brickbats from Cuepacs, which said any proposal to do away with or reduce the pension benefits of civil servants was “absurd and unwarranted”.
Cuepacs president Adnan Mat said the payment of pensions should be regarded as a form of recognition for service, rather than a burden on the government.
‘Short-term pain’ for government
Yeah said while the EPF-based system would help alleviate the government’s fiscal burden, Putrajaya would have to bear a “short-term pain” by paying the 11% employer’s portion for new recruits to the civil service.
“But in the longer run it is more sustainable,” he said.
He called for Cuepacs to be pragmatic and understand the rationale for transitioning to the EPF scheme.
He said it was imperative that the government assure the civil service union that the scheme will only be implemented prospectively, and will not affect the current workforce.
EPF scheme advantageous
Yeah also argued that switching to EPF was advantageous for the current generation, who were less likely to stick to one job throughout their lifetime.
“It makes sense for them to have a flexible scheme such as the EPF and they would accumulate the contributions over time,” he said.
The economist, who sits on a finance ministry advisory committee, also said pension reforms will reflect fiscal responsibility as the current system was reliant on current and future taxpayers’ money.