Government Servants' Retirement Age Extended to 60

The Prime Minister’s Department presented the following government bills for first reading at Dewan Rakyat of Parliament Malaysia on 8 November 2011, which related to the retirement benefits (including pension) for the government servants:

• Pensions (Amendment) Bill 2011
• Statutory and Local Authorities Pensions (Amendment) Bill 2011
• Pensions Adjustment (Amendment) Bill 2011
• Judges’ Remuneration (Amendment) (No.2) Bill 2011

As revealed in the recent Budget 2012, the retirement age of the government servants will be extended to 60 years old starting next year (2012). Currently, the retirement age is at 58 years old - although they can opt to retire earlier at age 55 or 56. Furthermore, in the event of a retiree passes away during 20 years (previously 12.5 years) after his retirement, his family members will continue to receive the full amount of his pension and other relevant retirement benefits.

According to Budget 2012, the government expenditure on pensions and gratuities comprise 5.2% of the total development expenditure (of RM230,833 mil). I am afraid that this figure will keep increasing in the future years, given that it is already a well-known fact that Malaysia has a lot of government servants (recently there were some political disputes on reducing government servants). If the the retirement benefits are using pay-as-you-go as funding method, these expenditures may appear as a treat to the country financial stability in the future - to make matters worse, the pension amount will need to adjust from time to time to reflect the increasing cost of living (the annual pension increases 2% as per Budget 2012).

Although extending the retirement age may delay the commencement of retirement benefits, but this effect will be partly offset by the larger pension amount - which is directly correlated to the final salary (final salary at age 60 is definitely larger than the salary at age 58). I would think that it is high time for the government to evaluate the management of government servants' retirement benefits and find another better approach to fund and pay the benefits (such as defined contribution plan... Well, I know it is a bit difficult...) - I don't want to see in the future that a large portion of the income tax I pay is used to pay retirement benefits. I couldn't imagine what the liabilities will be if the government asks the actuaries to do valuation on the retirement benefits.

Don't use luxurious retirement benefits for political reason to get votes, we will suffer in the future. It is easy to offer better retirement benefits, and it will be extremely difficult to cut the benefits - no one will like to receive lesser retirement benefits, although he may know that the country is facing financial problems. Just take a quick look on what has happened in Greece - people who used to have comfortable living will definitely object for anything that will make their living less comfortable (even though just "slightly" uncomfortable).

Don't wait until it is too late to correct - and the cure will be very painful.

Related news:

• Family members will receive full amount of retirement benefits if a retired government servant passes away during 20 years after his retirement (9 November 2011; Chinese Language; Sin Chew Jit Poh)
• 5%-6% expansion expected in 2012 (8 October; English Language; The Star)