Explained The Ticking Time Bomb Of Civil Service Pensions

---

 
Civil servants and pensioners form a huge vote bank which Anwar Ibrahim cannot ignore as the pensions bill continues to rise. (Bernama pic)PETALING JAYA: A former minister’s suggestion of reforms to the government’s pension scheme, which he called “a ticking time bomb”, has been rebuffed by the civil servants’ union Cuepacs as being absurd and unwarranted.
Cuepacs said it would not accept any proposal which compromises the existing privileges held by civil servants.
FMT looks into the key issues surrounding Malaysia’s civil service pension scheme.
Why a ‘ticking time bomb’?
The pension system took up a whopping RM30.5 billion in this year’s federal budget, amounting to nearly 8% of the RM389 billion budget, and an increase of RM3 billion over the 2021 budget.
Former prime minister Ismail Sabri Yaakob has predicted that pension payments could reach about RM46 billion by 2030.
This massive bill must be tackled before prime minister Anwar Ibrahim, who is also finance minister, is able to fulfil his pledge to cut Malaysia’s deficit budget to 3.5% in 2025.
What do civil servants get?
The Pension Act 1980 sets out a formula for calculating a civil servant’s pension. A civil servant who has served  least 25 years qualifies for a minimum pension of 50% of his last drawn monthly basic salary. For those who go on to serve 30 years, the amount increases to 60%.
By this formula, a medical worker in grade U29 who retires with a last drawn salary of RM3,476 after 25 years of service would be entitled to a pension of just RM1,738 per month.
However, in 2022, Malaysia’s poverty line was set at RM2,589, placing a vast number of retired civil servant below the poverty line and in the B40 category (lower-income group) even after 25 years of service.
Why has nothing been done?
Pension reform would risk offending and turning away 1.7 million voters (one million civil servants and 700,000 pensioners), a community generally seen as a vote bank for the government of the day.
Pensioners’ rights are also protected by the Federal Constitution, which states that the government shall not compromise the pension schemes already awarded to civil servants.
In other words, the pension scheme cannot be abolished outright. A detailed study is required to determine the best way forward if any government wishes to make changes.
Federal Court ruling on unconstitutional amendment
In June, the Federal Court affirmed a lower court ruling striking down an amendment made to a law governing the pension of civil servants as unconstitutional.
It said the amendment to Section 3 of the Pensions Adjustment Act 1980, passed in 2013, had put former civil servants in a “less favourable situation” with regard to their entitlement to increments in their pension.
It ordered the reinstatement of the original Section 3 of the Act.
This meant taking away a fixed 2% annual increment received by all pensioners since 2013, with pension payouts reverting to the sum they received prior to the amendment.
However, the government said the affected retirees will not have to return sums they have already received. In addition,  a special incentive payment was promised until December this year.
Pensioners are expecting the government to announce the continuation of this incentive beginning next January when Budget 2024 is tabled.
The revised pensions are expected to increase after the revision of the civil service salary scheme, which is in progress and expected to be completed by the end of next year.
Potential ways out
Former minister Khairy Jamaluddin has proposed future civil service recruits be placed on scheme involving contributions to the Employees Provident Fund instead of being made pensionable.
Another proposal, from the G25 group of prominent Malay retired civil servants and leaders, is for the government to reinstate the goods and services tax and implement targeted subsidies to fund the massive pension bill.
Which approach Anwar will take when he tables the 2024 budget on Oct 13 is sure to draw close attention from all involved. - FMT

---