Malaysia plans to cut pensions of new public employees

Prime Minister Anwar Ibrahim's plan is to get civil servants to pay into a non-government pension fund, an unpopular move with political risks among voters. Malaysia is not the only country in Southeast Asia facing hard decisions over retirement policies; few governments in the region are ready to deal with an ageing population.

Kuala Lumpur (AsiaNews/Agencies) – The Malaysian government led by Prime Minister Anwar Ibrahim has proposed to cut pensions of new civil servants, a move that many believe is needed to avoid bankruptcy, but which, according to some analysts, risks antagonising ethnic Malays who dominate public sector employment.

The pensions of more than 900,000 employees who retire this year are expected to cost at least 32 billion ringgit (US$ 6.7 billion), a figure set to rise to 120 billion (US$ 25 billion) by 2040 if the proposed plan is not implemented.

The scheme could come into force by the end of the year, once Prime Minister Anwar Ibrahim gets cabinet approval to amend the constitution.

Cutting pensions has been a hotly debated issue in Malaysia since the 1990s, experts say, and the ruling Pakatan Harapan alliance risks losing political support over it.

In the 2022 elections, the alliance won only 11 per cent of the ethnic Malay vote, and a survey conducted in November 2023 shows that more than 80 per cent of Malaysians were dissatisfied with the prime minister's handling of economic issues.

Currently, civil servants can opt for the government pension scheme, to which they do not contribute, or contribute to the Employee Provident Fund (EPF), the main retirement fund for private sector employees.

According to the government's proposal, all civil servants hired after 1 February will have to make mandatory contributions to the EPF or other pension funds.

Malaysia is not the only country in Southeast Asia facing difficult decisions about retirement policy.

According to a study cited by Nikkei Asia, a news magazine that focuses on financial issues, only a quarter of the region's working-age population (15 to 64) has access to a government pension, an issue that is set to get worse as the population ages and labour shortages increase.

Last month, for example, in Ho Chi Minh City (Vietnam), local authorities announced that they expect a shortfall of 320,000 workers this year.

If the trend holds, the number of Southeast Asian workers sent abroad will decrease in the coming years, particularly to Japan, home to about 520,000 Vietnamese and 230,000 Filipinos migrant workers.

Although the ageing demographics have not yet reached Japanese or European values, signs point in the same direction.

In Thailand, where 16 per cent of the population is already over 65 years, the International Monetary Fund (IMF) predicts that the country’s economy will grow at a much slower pace than in the past.

Most Southeast Asian countries are unprepared to deal with the consequences of an ageing population, especially in terms of retirement.

According to 2021 data from the Organisation for Economic Co-operation and Development (OECD), less than 30 per cent of the working-age population in Indonesia and Vietnam has access to a government pension, a figure that is also below 60 per cent in Singapore, compared to an OECD average of 87 per cent.

In addition, in many Southeast Asian countries, such as Thailand and Malaysia, it is possible to retire as early as the age of 55.

For Shotaro Kumagai of the Japan Research Institute, these countries, “may see a sharp increase in the financial burden on governments and households in the future.”

• southeast asia
• malaysia
• thailand
• vietnam
• japan
• ageing
• pensions
• retirement
• anwar ibrahim