With 1/3 of national budget for civil servants, pension review a hard reality, says veteran unionist

AH Ponniah holding a copy of the 1976 report on salary revisions, which he blames for the sharp rise in pension costs.

PETALING JAYA: A veteran union leader says the government’s current financial position means it has no choice but to axe the pension scheme, but warns Putrajaya to defer the plan pending a thorough study.

AH Ponniah, the former secretary-general of Cuepacs, the union representing some 1.6 million civil servants, also urged the government to form a royal commission of inquiry (RCI) to conduct an extensive study into the plan as well as gather stakeholders’ views.

Ponniah said the critical financial position was “a reality we have to accept”.

“We have no money. We need to accept this fact,” said Ponniah, adding that it was impossible for the government to continue paying pensions.

“The government has no resources unless they find new sources of income to bear the costs of paying the pension,” he told FMT recently.

Putrajaya recently announced its proposal to replace the current pension scheme with a contractual scheme as a way of overcoming the burden of paying out RM28 billion in annual retirement payouts for the civil servants.

Public Service Department director-general Borhan Dolah said the move could help the government save some RM5 billion.

Ponniah, who retired two decades ago from the civil service, said an in-depth study should be conducted for a new pension scheme mechanism.

“This can only be done by a royal commission of inquiry appointed by the Agong, not by a Cabinet task force or a task force of senior government officials.

“We need an independent body if we want to know the real situation and the rationale for introducing a new system to replace the current pension scheme,” he said.

Ponniah said the government’s shift in policy in the 1970s was partly to blame for the excessive pension costs.

The size of the civil service has ballooned to 1.6 million despite the privatisation drive during Dr Mahathir Mohamad’s first tenure as prime minister.

A wage report by a Cabinet task force in 1976 had recommended the payment of pensions to all public service grades and schemes.

Before that, only core schemes and grades in the public service, estimated to be only around 350,000 people at that time, were receiving pensions, apart from low wages.

Since then, salary adjustments, larger government bodies and the increase in the size of the civil service have contributed to the exorbitant increase in the pension bill.

“The situation got worse after a few policies were introduced in the early 90s, up until the changing of government in May 2018.

“This is without taking into account the overall expenditure and emoluments which are estimated to be RM80 billion annually.

Add the two together and the government has to allocate nearly RM100 billion yearly, which is a third of the annual operational budget of the federal government,” said Ponniah.

According to Ponniah, the government was prepared to face the effects of the pension costs when introducing the new retirement system in 1991, as well as the establishment of the retirement fund (KWAP), but it was not executed comprehensively with sufficient funds for the long-term payment of the pension bill.

While the privatisation programmes in the late 80s and early 90s led to a decrease in the workforce from around 1.2 million to 800,000 people, the figures went on to increase to the current number of 1.6 million, he added.

Dr Mahathir Mohamad has said the government would look for the best formula to ensure that public servants will not lose out.

The prime minister said the government might continue with the pension scheme but measures will be taken to relieve the financial burden of the government.