Malaysia Bloated Civil Servants

An official from the Employees Provident Fund (EPF) says the high amount of civil service pension payments and fast rising healthcare costs are a bigger fiscal concern than the country’s RM1 trillion debt.

EPF general manager for economics and capital markets Nurhisham Hussein told FMT the annual pension payout which stands at RM20 billion or so was “quite large”, and that public healthcare costs were around the same amount.

He said pension payments would continue to grow, as would healthcare costs which are rising faster than inflation and economic growth.

“Pension payment is something the government needs to look at reforming soon because any kind of transition plan is going to take decades.

“The longer we leave it alone, the bigger the problem will become, and it will have a big impact on coming budgets,” he said on the sidelines of an economic seminar organised by the Institute of Strategic and International Studies (Isis).

Former second finance minister Johari Abdul Ghani previously said the pay and pension for Malaysia’s 1.6 million-strong civil service was eating into the government’s operating budget.

Malaysia’s ratio of civil servants to population is one of the highest in the world at 1 to 19.37, compared to Singapore (1 to 71.4), China (1 to 108.3), Indonesia (1 to 110) and the UK (1 to 118).

Nurhisham said one of the government’s options was to switch from the current system of defined benefits pension to a defined contribution pension.

“With the existing system, the government promises to pay retired civil servants a fixed amount each month.

“A defined contribution pension will work like the EPF, where you get what you save.”

He also recommended that a blueprint be formulated to cover everyone as far as retirement is concerned.

“We need to look at all gaps in the system and say what is the minimum that someone needs to retire. What is the minimum amount of healthcare people will need, regardless of where they are in life?”

He acknowledged that this would involve a lot of work and fiscal resources but said these were the “hard questions” that needed to be addressed.

Although the government could not take away the benefits already promised to civil servants, he said, it could consider a defined contribution pension for those who enter the civil service in the future.

“In other countries, they do it this way. The key with a defined contribution pension is to ensure that the minimum paid out is enough.”