Govt looking at transferring pension operations to KWAP

KUALA LUMPUR: The Finance Ministry is looking into the possibility of transferring its pension fund operations to Retirement Fund Inc (KWAP) as part of efforts to reduce public debt – similar to what it did when it transferred some civil servant housing loans to a statutory body.
“For the pension department, we are thinking of, operation wise, giving it to Retirement Fund Inc because KWAP is the entity which is going to pay the pension in the long run. This is another thing which we are looking at in terms of the size of civil service. Whatever can be done outside the civil service,” Treasury secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah told reporters at the announcement of the Public Sector Home Financing Board’s (LPPSA) RM25 billion sukuk/bond programmes last Friday.
Irwan said the ministry is looking to transfer the entire pension department to KWAP, but payment of pensions will still come from the government until KWAP is able to take over.
Staffing, payment and processing will be transferred to KWAP.
“In the long run, it will help government in terms of debt management and so on. Even now, on contingent liability and so on, our government guarantee (GG) for example, we are charging a certain basis point for those who borrow from the government or those who have GG, we charge a certain percentage.
“We only provide GG to entities that we are very sure can service the loan on their own. For example, Khazanah Nasional Bhd-owned companies and LPPSA where the model itself shows they are sustainable on their own,” he added.
The ministry transferred RM21.9 billion from the Housing Loan Division to LPPSA, a statutory body established on Jan 1, 2016 that took over the division’s main function as the sole provider for government home financing for civil servants.
Irwan said the transfer would help reduce public debt to 53% of gross domestic product (GDP) this year from 54.5% as at end-2015.
He said the RM21.9 billion is only a fraction of the division’s total borrowings of over RM50 billion and the transfer to LPPSA would only add a small percentage to the current contingent liability of about RM170 billion.

“Even when it was with the government, it was part of the debt. Now it will be shifted from debt to contingent liabilities. There is a slight difference between debt and contingent liability because, whatever contingent liability, the entity will pay off itself, it doesn’t come from government’s allocation or budget. In this sense, LPPSA is very strong, viable and we are not worried about the contingent liability,” he added.
Meanwhile, LPPSA’s maiden RM25 billion sukuk/bond programmes comprise Islamic Commercial Papers/Islamic Medium Term Notes and Conventional Commercial Papers/Medium Term Notes Programme.
The government-guaranteed programmes will be issued by LPPSA to finance the provision of housing loans to civil servants. It is estimated that more than RM100 billion will be needed for the next 30 years to finance housing loans to the public sector while the estimated loan disbursement is RM8 billion to RM10 billion a year.
The three-year sukuk issuance programme with a 30-year tenure will be done in several tranches. The first issuance, estimated at RM7 billion to RM10 billion, is expected in July.
Irwan said LPPSA’s borrowings will be done independently and payments will come from loan collections.
LPPSA CEO Norsimah Ab Wahab said the expected pricing will be near sovereign pricing while Irwan said it will be “competitive”.
Norsimah said housing loans disbursed to civil servants range from RM120,000 to RM600,000, depending on eligibility and about 30,000 applications a year are approved.
“The loan interest is fixed at 4% and currently our policy is to allow repayment of up to 30 years,” she said, adding that the non-performing loan ratio is below 2.5%.