KUALA LUMPUR, Feb 28 — Malaysia’s retirement fund systems for both the private and public sectors can be improved by increasing the pension age and by cutting down the number of civil servants, a policy paper launched recently suggested.

The policy paper co-authored by three academics said problems may arise in a social welfare system that is heavily dependent on young people’s contribution to support a growing number of senior citizens.

The 38-page policy paper by the Academy of Responsible Management was co-authored by Universiti Malaya’s Prof Edmund Terence Gomez, Institute for Leadership and Development Studies’ Noor Amin Ahmad, HELP University’s Prof Geoffrey Williams, with support from German political foundation Konrad Adenauer Stiftung.

It noted that Malaysia’s senior citizens — defined as aged over 60 — amounted to 9.5 per cent of the Malaysian population in 2016, while the United Nations 2016 Economic and Social Commission for Asia and the Pacific had projected this age group to grow to 23.6 per cent or almost a quarter of the country’s population by 2050.

"The public sector is at the centre of this dilemma as the largest employer in Malaysia,” the policy paper titled "Intervention and Non-intervention: Policy Ideas for a Social Market Economy in Malaysia” said, noting that the government’s bill for pension and retirement payments nearly tripled from RM8.25 billion to RM21.76 billion between 2007 and 2017.

It cited a June 2017 news report by local business publication The Edge when saying the pension and retirement charges were projected to more than triple between 2017 and 2030, also noting the report’s projection that Government Retirement Fund Inc (KWAP) would only be able to sustain payments for another seven years if it takes on 100 per cent annual pension obligation between 2017 and 2027.

Civil servants receive pension when they retire due to reaching the age of retirement, medical reasons, abolishment of service and reorganisation, the policy paper noted.

The minimum retirement age for government servants was gradually raised from 55 to 56 in 2001, before further increasing to 58 in 2008 and 60 in 2012.

In EPF data reportedly dating back to 2015, 68 per cent of EPF members have less than RM50,000 in savings by the age of 54, while only 22 per cent had managed to save up to the then minimum targeted amount of RM196,800 set by EPF. — Picture by Yusof Mat Isa

Private sector’s retirement fund

As for the Employees Provident Fund (EPF) or the pension scheme for the private sector and non-pensionable civil servants, the policy paper said their retirement savings are reduced as employees are allowed to withdraw a portion of the funds before retirement.

"The real value of the pension has also eroded with the introduction and possible increase of GST in the future, as well as with inflation,” it said, referring to the Goods and Services Tax that was introduced in April 2015 at a rate of 6 per cent.

In EPF data reportedly dating back to 2015, 68 per cent of EPF members have less than RM50,000 in savings by the age of 54, while only 22 per cent had managed to save up to the then minimum targeted amount of RM196,800 set by EPF.

The EPF had from January 2017 increased the minimum amount that employees should target to have in their EPF savings by the time they reach age 55, pushing it up from RM196,800 to RM228,000 as the sum required to cover their basic needs until age 75. The EPF had benchmarked this against civil servants’ minimum monthly pension that was raised from RM820 to RM950 from age 55 to 75.

The average life expectancy rate for a Malaysia has increased from 74.6 years to 74.8 years as of 2017, the Department of Statistics Malaysia’s data showed.

The Minimum Retirement Age Act which took effect in July 2013 increased the retirement age for the private sector from 55 to 60.

Boosting savings and other moves

The policy paper recommended several measures to improve Malaysia’s pension system, including increasing the retirement age to 65 years old, limiting the number of public sector employees and creating incentives for savings by reforming the EPF.

It also suggested the government give the private sector more tax incentives if they offer support for their staff to increase savings, as well as additional incentives to encourage Malaysians to save with an annual tax exemption equal to 20 per cent of their savings.

It also mooted the curbing of the growth of Malaysians’ household debts such as by scrapping car tax, tackling speculation in the housing market and more regulations on the use of credit cards.

Last year, Malay Mail reported the Malaysian Trades Union Congress as supporting the retirement age being increased from 60 to 65, while the Malaysian Employers Federation said that working beyond the age of 60 should be on a voluntary basis.