KUALA LUMPUR (Feb 28): The Edge weekly in its latest edition said that tighter finances meant that pension reforms were inevitable and that such reforms were happening around the globe because a significant jump in the cost of caring for people in their old age — be it to put in place infrastructure that is more friendly to the aged or more expensive healthcare requirements.

The Edge’s Cindy Yeap, Kamarul Azhar and Kathy Fong wrote that while Malaysia’s population was still much younger compared with that of the developed countries where these pension reforms have taken place, one in 10 Malaysians will be aged 65 and above by 2035, according to projections by Malaysia’s Department of Statistics.

“That means 3.89 million people aged 65 and above — more than double the 1.43 million in 2010 — and this is projected to rise to 4.41 million, or 11.4% of Malaysia’s population, by 2040,” they wrote.

The Edge said that in fact, official projections show Malaysia would reach the 7% threshold The World Bank defines as an ageing society in just six years, in 2021.

It said the number of people in the workforce aged 50 to 54 has doubled since the turn of the millennium to 1.1 million in 2013. At the same time, there were 1.33 million workers aged 45 to 49 who are approaching the traditional retirement age.

As it is, seasoned economists point out that a big portion of the reason Malaysia has been asking for supplementary budgets in recent years was to fund its emolument, pension and gratuity commitments, said the weekly.

The magazine said whether Malaysia’s civil service is indeed bloated was debatable, but there was no denying the fact that the government’s payment of salaries and pension was rising fast.

The Edge wrote that emoluments, pension and gratuities cost RM81.52 billion in 2014 or 36.8% of the government’s operating expenditure (opex) and 36.2% of federal government revenue.

It said this is projected to rise to RM81.91 billion this year — 38.6% of the revised projected government opex and 36.75% of the revised projected government revenue for 2015.

While the share of emoluments, pension and gratuities has consistently ranged between 30% and 40% of total government opex since as far back as 1976, the absolute amount needed to foot the bill has risen an average of 9.7% a year from RM16.83 billion in 1997 to 2014 compared with an average annual growth of 7.5% for government revenue over the same period to RM225.1 billion in 2014.

The amount required for pension and gratuities stood at RM16.17 billion in 2014, doubling that required in just seven years and 4.3 times that required in 1999. This was projected to be RM16.26 billion under Budget 2015 tabled last October.

“It’s a shame that the fiscal relief the government enjoyed from the lifting of subsidies is negated by the loss of oil-related revenue, given that subsidies were about one third of supplementary budgets,” The Edge cited a local economist as saying, adding that “about 40%” of supplementary budgets went to emoluments, pension and gratuities.

It quoted the economist as casting doubt that the government could slow pay increases or slash its workforce due to perhaps social obligations to absorb more people into the workforce [to keep unemployment low] although that should happen only during a recession.

It also reported the same economist as saying that it was unhinkable to stop the civil service pension, but that [tight] fiscal conditions may force some sort of compromise to reduce the government’s burden.

For the complete story on the burden faced by the government and tax-payers in addressing the needs of a fast ageing population in Malaysia, , get your copy of The Edge for week of March 2 to March 8 available at newstands now.

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