Is the pension scheme really too expensive to maintain?

I refer to the proposal to convert the civil service pension scheme to a contract scheme. I presume the conversion will involve changing the pension payment to the EPF scheme, just like those in the private sector.

At this stage, we are not sure whether the contract scheme, as being proposed, will affect security of tenure. Rightly all employments, whether contractual or permanent, should provide security of tenure unless the employees concerned have violated their terms of employment.

However, the EPF scheme would probably provide more flexibility since it allows employees to leave the service without losing their “pension benefits”.

The issue to focus on is whether the pension scheme is really more expensive to maintain than EPF.

Civil servants on the pension scheme do not receive monthly EPF contributions from the government as in the case of those in the private sector. But this does mean the government is free from obligation to provide for civil servants’ retirement.

It is the responsibility of the government to earmark a certain amount to cater to the retirement needs of their employees when the time comes.

The problem with most governments, Malaysia included, is “unfunded pension liability”. They put their employees on the pension scheme, but they have not provided periodic allocations to cater to their employees’ eventual retirement.

Kumpulan Wang Amanah Pencen (KWAP) was supposed to pay this role i.e. to periodically receive allocations from the government, manage, invest, and grow the fund so that future pension payments are self-generating and sustainable.

The money in KWAP should be jealously guarded against pilferage and abuse. But we know by now the “history” of KWAP and how the money was conveniently siphoned off to finance fiscal deficits and to finance dubious and devious projects.

I think the government and the Public Service Department must get their bearings right. The pension scheme, on average, should not be more expensive than the EPF scheme. The scheme requires disciplined allocation, management and prudent investment by KWAP.

We have problems paying pensions because (i) we did not sufficiently provide for it; (ii) we abused the money in the pension fund; (iii) we increase the number of civil servants and their salary indiscriminately and (iv) we pay political retirees too lucratively. Politicians get too much and too many pensions for doing very little.

The pension scheme per se is not the culprit. It can’t be more or less expensive than EPF.

What we need are periodic allocations, proper management, and greater control of the size of the civil service and pension entitlements of politicians.

Know the cause before solving the problem, otherwise it is a symptomatic cure.

TK Chua is an FMT reader.

The views expressed are those of the author and do not necessarily reflect those of FMT.