Revamp for pension scheme?

PETALING JAYA: The government may consider replacing the current civil servant pension scheme, which parks some RM300 billion in liabilities with the government, with one which sees new civil servants contributing to their retirement, very much like the Employees Provident Fund (EPF).
Such a move would enable the government to wean itself from the burden of ever-growing pension liabilities.
Currently, both the government and employers of civil servants contribute to the defined benefit scheme, which funds the promised 50% last drawn salary for life for ex-civil servants, and in the event of death, their spouses.
Contributing employers consist of statutory bodies, local authorities and agencies having pensionable employees.
In the future, however, the government may consider a defined contribution scheme, much like the Employees Provident Fund (EPF) model, that sees both the employee and employer contributing towards the former's retirement fund.
It is understood that in Budget consultations for this year, Prime Minister Datuk Seri Najib Abdul Razak acknowledged that the current scheme is unsustainable in the long run, signalling a push towards the drawing up of an alternative scheme.
"For all you know they (the government) may decide that this (current) scheme is unsustainable, we may move to the EPF (type) scheme. Let's say in future, five years down the road, new civil servants will be on defined contribution, so we (KWAP) will be managing both a defined benefit and a defined contribution scheme, that is how I see it go. Because this is just too good to last," Retirement Fund Inc (KWAP) CEO Datuk Wan Kamaruzaman Wan Ahmad told theSun recently.
KWAP manages pension contributions from the federal government, statutory bodies, local authorities and other agencies; and invests the RM120 billion in its coffers.​​
In 2014, KWAP received a total collection of RM4.37 billion comprising federal government's contribution of RM1.5 billion, employers' contribution of RM1.02 billion and receipts of government's portion of RM1.85 billion. Its annual report for 2015 is due to be published soon.​
Kamaruzaman acknowledged, however, that a move towards a defined contribution model would need to be backed by strong political will. There are 1.6 million civil servants currently.
Meanwhile, KWAP in November 2015 started paying out pensions to the 700,000 retirees on the government payroll after amendments were made, earlier in the year, to the Retirement Fund Act 2007 for it to do so.
The money used for pension payments, however, is still provided for by the government, allowing KWAP to maintain its current unique position of focusing on growing its fund. KWAP obtains a fee from the government to perform the task, which is to defray administration costs.
The fee payment however is dependent on KWAP meeting seven criteria set out by a service level agreement between the government and the pension fund.
"The service level agreement is to ensure we remain efficient and so we do not slack, and meet certain thresholds set by the government," Kamaruzaman said, adding that the pension fund also does processing of pre-retirement for civil servants.
To do this, KWAP absorbed the entire public pension department previously parked under the Public Services Department. The 250-strong department is currently stationed at KWAP's office in Cyberjaya.
As at March 31, 2016, there were 503 contributing employers and 180,305​ members registered with KWAP.​​