Government Announces A New Pension Scheme, What Does This Mean?

Last week, Deputy Prime Minister Datuk Seri Zahid Hamidi, announced that moving forward, the government will be introducing a new civil service hiring policy, which will bring a host of changes, including a very controversial change to the existing pension scheme.

In the new civil service hiring policy, Datuk Zahid Hamidi stated that for the time being, any new civil service hiring will be on a contractual basis, and the new hire will contribute to retirement schemes like the Employee Provident Fund (EPF) and Social Security Organisation (Perkeso) instead of the existing pension scheme.

The hiring of new civil servants on a contractual basis is temporary, at least until the cabinet approves the new policy of non-pensionable permanent employment for civil servants, said Zahid Hamidi.

A necessary move to reduce fiscal burden

According to a report from New Straits Times, Zahid stated that the move to phase out traditional pensions for civil servants is necessary to reduce the fiscal burden on the government.

Zahid stated that if the government carries on with the existing pension scheme, the government will have to spend an expected RM120 billion in 2040 for pension payments.

This also will mean that a significant burden will be placed to the government, particularly on the Retirement Fund Inc.

Existing civil servants will not be affected

However, Zahid also ensured that the civil servants that were hired under the current policy will still receive their pension once they complete their service.

This is a sentiment that was reiterated by the newly appointed Finance Minister II Datuk Seri Amir Hamzah Azizan.

In a report from Malay Mail, Amir Hamzah stated that the government was committed to ensuring the welfare and well-being of civil servants and pensioners were always protected.

Amir stated that the government has promised that the existing civil servants will still get to enjoy their pensions, and only new hires under the new civil service hiring policy will be affected.

Amir also added that if the government’s fiscal burden can be lightened, then the money can go to other important sectors, such as infrastructure and education.

New hiring policy not received well

Perhaps unsurprisingly, the new hiring policy was not well received by the public and the opposition, with many of them calling for alternative measures to be implemented instead.

One of the most popular suggestions is for the government to first look into the abolishment of the pension of cabinet ministers, deputy ministers, members of parliament and assemblymen, before looking to abolish the pensions of the civil servants.

This is due to the fact that this category of people receive full pension payments, even though their term of service is only for five years.

This sentiment is echoed by lawmakers from both the government and the opposition as well, such as Johor lawmaker Ling Tian Soon, who stated that the government should first stop paying the pensions of ministers, deputy ministers and elected reps, before abolishing the pensions for low and middle ranking civil servants.

However, it is also important to note that the suggested abolishment of ministers, deputy ministers and elected reps pension is miniscule compared to what the government can save by abolishing the civil service pension scheme.

According to the Estimated Budget Expenditure from the Ministry of Finance, Budget 2024 will expend RM26 billion for the payment of civil servant pensions, and only RM100 million for the payment of pension to former ministers.