RECENTLY, pension reform and the retirement age made headlines, but the general response only addressed the issues on a piecemeal fashion and with some misleading facts and figures.

Government expenditure on pension and gratuities was RM25.8bil in 2018. In the same year, expenditure for emolument was RM81.3bil. As a share of total current expenditure, the government is spending about 11% on pensions and 35% on salaries. The same set of numbers represent about 1.8% and 5.6% of our national GDP at current prices.

At present, the civil service pension is unfunded and charged using proceeds from the Federal Consolidated Fund, as provided under the Pensions Act 1980 and the Federal Constitution. When the Pensions Trust Fund Act was enacted in 1991, it was to assist the government in funding its future pension liability as an employer.

The Federal Government contributes 5% of total emolument budget for their employees while statutory bodies, local authorities and agencies contribute 17.5% of the basic salary of their pensionable staff. Today, KWAP or the Retirement Fund (Incorporated) has a total fund size of RM140.8bil.

The existence of KWAP and its predecessor shows that the government is not unmindful of its fiscal responsibilities (and liabilities).

Compared with the Employees Provident Fund for private sector workers, KWAP’s total fund size dwarfs the latter’s RM814bil. As noted by the CEO of EPF recently, the provident fund is growing on a net basis increase of between RM1.5bil and RM1.9bil every month. Employees contribute 11% while the employers’ share is between 12% and 13%. The payout mode is also very different.

Technically, there is no pension replacement rate for EPF as the retirement savings are disbursed on a lump-sum basis at the withdrawal age of 55.

Amid the charge that the civil service needs to be right-sized, there is greater urgency to improve the efficiency and cost-effectiveness of the public sector. Our country’s past experience with privatisation has yielded a mixed bag of results, and some remain virtual monopolies till this day. Truth is, the earning gaps in public and private sector employment cannot be fully rationalised by security in tenure.

The way forward is to reduce differences in benefits by introducing simultaneous reforms to make wages more sustainable for all. Civil servants could start making contributions to their own pension fund while private sector workers should receive their retirement income via an annuity plan.

It may sound difficult, preposterous and even impossible, but we must make responsible decisions for a sustainable future. We have many economists, statisticians and actuaries who can do the math and projections needed. For example, if the average life expectancy after 60 is 18 years, employees should have a minimum balance of RM216,000 in their EPF accounts for a monthly annuity of RM1,000 in the same period. You can take home anything exceeding the minimum amount, but if your retirement savings fall short, there should be a mechanism for government intervention to protect lifetime low-wage earners.

Similarly, contributions to EPF should be capped for earnings over RM24,000 a month. A ceiling is sorely needed to prevent abuse of the provident fund as high-income earners can invest their money elsewhere without worsening the rising inequality between the rich and poor.

The same goes for the civil service pension. Both the pension and derivative pension are directly affected by the increase in life expectancy. While it has been widely acknowledged that government wages are unattractively

low, this is a problem that gets carried over into retirement, as pensions are calculated on the basic salary and not actual take-home pay.

Efficiency issues are not properly addressed when the disparity in wages are ignored. Logically, we should reduce the differences between public and private sector employees and put everyone on a similar performance-based remuneration plan and guaranteed minimum pension benefits.

We need to analyse both the employees provident fund and civil service pension data over time to understand its trends and patterns, as productivity gains benefit the society as a whole whether the employer is the government or a company. Individual accounts, notional or fully-funded, are the way forward, with strong built-in elements of risk-pooling and/or redistribution.

If our individual pension or retirement savings run out, then perhaps the old age welfare assistance scheme can then kick in or a new long-term care insurance be introduced.

It is time for a social protection reform because the population is ageing rapidly due to falling fertility rates.

The absolute number of the under-14 or under-20 population reached its peak in 2010, and the share of the younger population has been decreasing since 1970. Today, one in 10 Malaysians is an older person aged 60 years or above. The percentage of the younger population under the age of 15 is 25% while the working age population (15-59) is about 65%.

Twenty years from now or some time around 2040, the number of older persons aged 60 years or more will exceed the number of younger people aged 15 years or below. More and more people are living longer, and families are struggling to care for both the young and old alike.

Increasing the retirement age in 2012 has reversed the labour force participation rates of older workers between the ages of 55 and 59 years. At present, we do not really need to increase the retirement age again. Instead, there is a need to provide employer incentives to hire older workers, such as the recently approved amendment to the income tax rules.

Focus should be on extending pension coverage and benefits to those in the informal or non-formal sector, especially those in temporary work or the gig economy. We should rethink our approach to ensure old age income security for those who are self-employed or individuals outside the labour force, such as housewives or house husbands.

We should also change the way we deliver and manage public cash transfers, be it through the Department of Social Welfare or other government agencies. Social assistance is a means to an end and not an end in itself. Without proper social work and case management, welfare recipients are often left to fend for themselves.

I am a civil servant but I am also a taxpayer. We all want our tax dollars to work for greater public good and not just to benefit a select few. A lot of the gaps in our social protection system can be addressed by healthy debates on evidence-based policy-making through proper monitoring and evaluations, strong political will and drawing the right lessons from other countries. We cannot be envious of what citizens in other countries enjoy when we ourselves are not willing to fund it.

If we have a national health insurance programme, perhaps more funds could be raised to improve our public healthcare system delivery. Globally, privatisation in healthcare and education sectors have accentuated new gaps between the haves and have-nots, where profit-making and enrichment of a few have affected universal human rights to basic health, decent work and quality education. I hope this will not happen to Malaysia.

In the upcoming 12th Malaysia Plan, I hope broader consultations can take us closer to the true meaning of inclusive development, leaving no one behind in the name of progress.

CHAI SEN TYNG

Seri Kembangan, Selangor