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The Long-Term Financial Sustainability of the Civil Service Pension Scheme in Malaysia

Author

Listed:
  • Sheila Rose Darmaraj

    (School of Business INTI International College Penang 11900, Penang, Malaysia and School of Social Sciences Universiti Sains Malaysia 11800 Minden, Penang, Malaysia)

  • Suresh Narayanan

    (School of Social Sciences Universiti Sains Malaysia 11800 Minden, Penang, Malaysia)

Abstract

The civil service pension scheme (CSPS) in Malaysia is a defined benefit (DB), non-contributory system directly funded from the budget. An aging population, rising life expectancy, and ballooning pension payments underscore the need for reform. An annual pension deficit model was used to estimate the pension deficit over a period of 75 years under eight scenarios that compare the current scheme with changes in the pension deficit when three policy variables—retirement age, contribution rate, and replacement rate—are manipulated. We found the current scheme will not be financially sustainable. By increasing the retirement age, introducing employee contributions, and reducing the replacement rate, it is possible to delay the emergence of deficits and lengthen the period of sustainability of the scheme. However, a radical makeover is necessary to be fully sustainable and this might not be politically feasible.

Suggested Citation

  • Sheila Rose Darmaraj & Suresh Narayanan, 2019. "The Long-Term Financial Sustainability of the Civil Service Pension Scheme in Malaysia," Asian Economic Papers, MIT Press, vol. 18(1), pages 155-178, Winter/Sp.
    • Handle: RePEc:tpr:asiaec:v:18:y:2019:i:1:p:155-178
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    References listed on IDEAS

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