KUALA LUMPUR: The planned introduction of an Employees Provident Fund (EPF) scheme for new civil service hirings has sparked uncertainty and anxiety.
Economists said shifting to the EPF is not a silver bullet for curbing pension expenses as existing pensioners will remain on the old scheme, preventing an immediate cost reduction to the government.
They called for clarification and cautioned that such a policy lacking transparency will raise concerns among the civil servants.
"In 2024 alone, the government is set to contribute 17.5 per cent of the emoluments, amounting to RM16.7 billion out of a total of RM95.6 billion.
"This financial commitment will remain unchanged, maintaining the overall expenditure," Malaysian University of Science and Technology's economic professor Geoffrey Williams told Business Times.
Williams said the transition to the EPF will bring a set of complexities, with civil servants facing higher contribution from 17.5 per cent to 24 per cent.
They will now bear 11 per cent of this burden themselves, while the government covers the remaining 13 per cent, representing a 4.5 per cent reduction in state contributions.
"So civil servants might push for higher wages to cover these higher costs and the overall cost to the government will not fall," he said.
Williams believes the new scheme will contribute little to the EPF and will dilute the dividend for its existing members.
He said a much better scheme is to create a Malaysian Superfund, separate to EPF combining public pension funds KWAP and Lembaga Tabung Angkatan Tentera with other underperforming funds such as Kumpulan Wang Amanah Nasional or KWAN, Khazanah Nasional Bhd and even Permodalan Nasional Bhd.
"This would create a fund to finance the current RM30.5 billion pension liabilities and save the RM16.7 billion pension contributions.
"This will give a total saving of RM47.2 billion from government operational expenditure which can be spent on other priorities such as healthcare and social protection.
"As it is, people outside the civil service without pensions themselves are losing out on public services because the money is paying civil servants pensions," he said.
While acknowledging the intention to alleviate KWAP's investment commitments, Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff stressed that the primary focus must be on establishing a sustainable retirement income for civil servants.
"I understand that this new policy is to ensure that KWAP will not be too burdened with its current commitment in investment and providing competitive return to its members.
"But the main objective of this new policy must always be centered towards creating sustainable retirement income for the civil servants.
"So there must be an assurance or guarantee that the civil servant will not be shortchanged when given this new scheme as compared to what KWAP and EPF can offer at the moment," he said.
Ahmed Razman also pointed out uncertainty regarding the nature of the proposed new scheme and its potential resemblance to the EPF contributions.
"It is still unclear whether the new scheme is actually an EPF contribution but probably it is going to be another fund which has similar characteristics to EPF, so most likely the contribution will not go into EPF," he said.
Off the different views, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the new scheme is part of the fiscal reform whereby switching to the EPF scheme would reduce the financial burden of the government.
Afzanizam said this would free more space for the government to spend on economic development that will raise the productive capacity of the country.
"Since the new scheme would only apply to the new recruits, I suppose it would not create a shock since the existing staff will continue to enjoy the same benefit," he added.