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Heretofore, pension has become a crucial element of cost to the
government as well as private employers. A pension is a series of monetary
payments made upon retirement to a retired employee or their survivors depending
on the types of pension benefit which will continue for the rest of their life.
The Malaysian Government Pension Scheme, offered by the Malaysian government is
entitled to all employees in the public sector who are on pensionable status. Those
who are employed personally by the government, statutory bodies and local
authorities can be categorized as public sector employees. The scheme was previously
established in 1951, even before the independence of Malaysia in order to serve
several purposes including acknowledging and appreciate the excellent service rendered
to the Government by a personnel, providing the life subsistence for the
dependants of personnel or personnel itself, to develop a form of Compensation
Scheme for personnel who are required to retire or passed away due to an injury
or become infected with a disease and lastly act as a bondage for personnel to
retain their service with the Government. In simpler words, the purpose of the
scheme is mainly to provide financial security to government workforce and
their survivors in the event of retirement, death and disability.

 

Government sector holds a large proportion of the country’s population
with the highest number of government servant in the world, with a rate of one
civil worker in every 19.37 percent people (Malaysian Digest, 2017). The
current pension scheme for civil servants is called Defined Benefit (DB)
wherein only the government and other employers of civil servants, such as
statutory bodies and local authorities will contribute towards the scheme. In order
to assist the Federal Government in funding its pension liability, the Pensions
Trust Fund Act 1991 (Act 454) was enacted. However, it has been replaced with Kumpulan
Wang Persaraan (Diperbadankan) (KWAP) or the Retirement Fund (Incorporated) which
was established on 1st March 2007 under the Retirement Fund Act
2007(Act 662). The incorporation of KWAP enable all powers, functions,
activities, assets and liabilities of the Pensions Trust Fund to be taken over
in total. As mentioned earlier, KWAP is an organization that is responsible in managing
and processing pension benefits for government servants in Malaysia. This strategy
is expected to benefit the pensioners in terms of providing them with better
service as well as improved efficiency in processing the pension payment. In
addition, KWAP is the second biggest pension fund with 125 billion ringgit of
assets’ ownership.

 

Government has previously set the maximum retirement age for the government
servant to be 55 years old. However, since Malaysian population are
experiencing a steady increase in life expectancy where pensioners are expected
to live longer than before, there will thereby cause the pension liabilities
for the government to be high. According to this matter, government has
extended the retirement age of the workers to age 56 in 2001, and subsequently
adding another two years which is age 58 and the latest extension age is up to
60 years old. The higher rate of life expectancy of the population in general
will lead to the increase in number of recipients of retirement pension that
need to be paid by the government in a longer duration of time. Thus the extension
of retirement age mainly aims to lessen the burden towards the pension liabilities
hold by government. As for the workers itself, most of them especially healthy
people may consider to extend their retirement age rather than stop working in
order to avoid receiving small amount of pension compared to their normal
income earned during working days (Rose Irnawaty & Zailan, 2012). Hence, a
bigger bucket of savings will be available which will provide simultaneous
improvements in the sustainability and adequacy of pension fund.

               

Under the Malaysian Government Pension Scheme, the government servants
are entitled to an array of benefits in various forms. First and foremost is
the retirement benefit in the form of monthly pension payment, a gratuity as a
reward for their service to government and cash award in exchange of accumulated
leave when applicable. Next is survivors’ benefit which consists of Derivative
Gratuity and Derivative Pension. This pension benefits are extended to the
dependants of pensionable officer who dies, whether they are still in Government
service or after retirement. Last but not least, disability pension. Disability
pension will be given to the workers that suffered from accident or diseases
caused by his job or due to a travel accident (Malaysia, 1980b). The amount of
disability pension paid is essentially a specified proportion of basic salary
and will depend on the degree of impairment. However, this research will only
take into account the retirement benefit which will be classified as the future
pensioners’ wealth upon retirement.

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