An economist believes that the abolition of the pension scheme for new civil servants will impact government spending and the country’s socioeconomic landscape. The savings from the move may take decades to realise as the government will need to bear the 13% contribution to the Employees Provident Fund (EPF). The shift from the pension scheme to EPF contributions may result in the country experiencing a decline in the number of civil servants in various sectors.
Others believe civil servants may stand to unlock a bumper retirement windfall, with a back-of-the-envelope calculation - one may have a savings pool of RM1.36 million through the new Employees Provident Fund (EPF) scheme. The estimated RM1.36 million is a result of over a civil servant's 35-year career.
Source: https://en.wikipedia.org
Key assumptions and calculations that underpin this financial windfall include EPF’s dividend remains at 5.0 per cent per year coupled with an annual salary increase of RM225 per year. Refraining from withdrawals throughout the entire 35-year service period and opting for the EPF annuity scheme without a lump sum withdrawal are other assumptions.
At the age of 60, a civil servant following these assumptions would accumulate a substantial savings pool of RM1.36 million. This significant sum enables the retiree to withdraw an annuity of RM10,000 per month for an impressive 15-year period. Remarkably, this financial achievement is realised even if the civil servant begins his or her career at the age of 25 with a modest monthly salary of RM2,700.
The government's liability for pension payments will reach RM120 billion in 2040 if the existing policy for the hiring of permanent positions in the civil service is continued. It is time for us to move away from pensions to an EPF system, just like what the private sector has been doing for decades. The country needs just one system and less allocation for payment of pensions in the future.
References:
EPF for new govt servants may have negative impact, says economist, Yasmin Abdul Latif, Free Malaysia Today, 26 January 2024
Million ringgit retirement windfall for civil servants under new scheme? Azanis Shahila Aman, New Straits Times, 25 January 2024
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