The Long Term Financial Sustainability Of The Civil Service Pension Scheme In Malaysia
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Date
2017-02
Authors
Darmaraj, Sheila Rose
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Malaysia
Abstract
CSPS is a non-contributory and a defined-benefit pension scheme for all government
employees who are eligible for pension. Under this scheme, the employees do not
contribute for their pension and all expenditure is borne by the government through
tax revenues. With the growing number of public sector employees, their longer life
expectancy, and the expanding benefits under the CSPS, spending on pensions has
been escalating. The main objective of the study was to assess its financial
sustainability in terms of the pension deficit (ratio of pension deficit to total wages)
and financial gap (pension deficit as a percentage of GDP). A country specific model
that allows the projections of future expenditures and revenues over a period of 75
years was used to undertake this exercise under eight alternative scenarios. The
findings indicate that if no intervention is made, the pension fund becomes
unsustainable with both the pension deficit and the financial gap increasing at an
increasing rate over time. On the other hand, if an increase in retirement age is
combined with a reduction in replacement rate, and an increase in contribution rate,
the pension scheme becomes more sustainable by delaying the pension deficit and a
financial gap over a longer time period. These measures are best introduced in phases
and applied only to new civil service recruits. However, the pension deficit and
financial gap can only be effectively overcome if, along with the above measures, the
size of the civil service is cut and benefits of the pension scheme are substantially
modified. These are measures more difficult to implement.
Description
Keywords
Long term financial sustainability of the civil service , pension scheme in Malaysia