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22 May 2024

Monday, January 31, 2022

Court decision on pensions exposes a ‘time bomb’

 

A recent court decision has saddled the government with a huge pensions problem that could cost billions of ringgit in backdated claims, if implemented.

The nation’s annual pension bill, which has been growing every year, could, some day, become a burden too heavy for taxpayers to bear.

This is a result of a Court of Appeal ruling on Jan 13 which declared as unconstitutional a government amendment to the way the pensions scheme is adjusted from time to time.

From 2013, a new scheme was introduced based on a flat rate of a 2% annual increment. Those who retired before 2013 received pensions based on the salary grade of the time.

Those who retired after 2013 received a different amount, even for the same grade.In some cases, older retirees receive an amount that is half of what post-2013 pensioners get.

The government has not filed a notice of appeal to the court decision yet, but my guess is that it will, as it is a serious problem that must be tackled.

A group of retired judges and their dependents have already sued, saying their pensions should be based on current salaries of serving judges, and a group of former senior military officers are seeking similar redress for those who retired before 2013.

If the government does not appeal and the decision is implemented, the cost implication is mind boggling.

For example, a retired warrant officer 1 in the army currently receives a pension of RM4,000 while those before 2013 get only RM2,000. If the court decision is followed, the older retiree is entitled for nine years’ arrears of the difference, amounting to about RM240,000.

As hundreds of thousands of pensioners are affected by the court decision, the total payout may run into tens of billions of ringgit, and the current monthly pension bill of RM700 million could probably soar to a billion in no time.

The problem is further compounded by Malaysia’s increasing life expectancy, which adds further stress on the public pensions scheme.

Nearly 50% of the government’s annual expenditure goes towards emoluments of civil servants and towards pensions. The amount has nearly doubled over 10 years.

In other words, half of Malaysia’s taxpayers are working hard to help the civil servants keep their jobs and to pay pensioners. The scary bit about this is that the figure is growing every year.

Pensions alone take up about 12% of the total federal budget for this year, up from only 6.9% ten years ago.

There are a total of 700,000 government retirees nationwide, including the police and armed forces

Only one prime minister had so far raised concerns about the pensions problem. Dr Mahathir Mohamad had proposed pension reforms without hurting retirees when he helmed the Pakatan Harapan (PH) government.

But his statement came under attack from the opposition who accused Mahathir of wanting to do away with pensions. There was widespread anger, despite a clarification that it won’t affect current pensioners.

We have not heard anything about pension reforms since the fall of the PH government in March 2020.

As pensioners and civil servants form a huge vote bank, and the number of those affected run into millions, the government fears rocking the boat.

However, the government cannot compromise on this issue. The rising pensions bill will surely run the nation into the ground.

There is no silver bullet or an overnight solution but the politicians must start thinking of a long-term solution.

The government should not be in the business of keeping a group of voters happy just for their political support to the detriment of others.

For a start, there is a need to do away with the pension scheme for new government servants and make them opt for the EPF scheme. There are also private pension schemes that workers can contribute to besides EPF which is mandatory. The idea is to do it sooner than later.

Let’s have the political will to do what is right here, and not play to the gallery. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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