KUALA LUMPUR (Nov 23): When Kumpulan Wang Persaraan (Diperbadankan) (KWAP) was established in 2007, with an initial fund of RM41.9 billion, the federal government’s pension and gratuity obligations stood at a mere RM8.25 billion, just 6.7% of its total operating expenditure (opex).

Some 16 years later, the fund had grown slightly more than four times to RM169.8 billion as at end-2023, but the retirement charges had blown up to RM34.08 billion, or 10.9% of the government’s opex. 

By 2025, the pension bill for retired civil servants is expected to exceed RM40 billion for the first time in history, increasing its share of the government’s opex to 12.1%. Beyond that, the bill stands to reach RM120 billion by 2040, raising concerns about the long-term viability of the public pension system.

While the urgent need for public pension reform has long been put forward, KWAP chief executive officer Datuk Nik Amlizan Mohamed explains any meaningful change would require careful consideration, gradual implementation, and a deep understanding of current needs and future challenges.

“For any pension reform to be successful, it would need to be looked at very closely and be done in a gradual manner. The study needs to be done to meet the current needs of the population, the pensioners, and also the fiscal requirements of the government now,” she tells The Edge. “Any reform that we wish to take, we have to take that multi-decade kind of view. So, I think there’s no such thing as one size fits all when you talk about pension reform.”

Nik Amlizan’s words underscore the pressing need for pension reform in Malaysia, but with caution. KWAP, tasked with managing the pension fund, is aware of the global struggles many nations face in maintaining outdated pension systems. Even developed countries are tackling the same challenges, with some nations extending retirement ages and others, like France, facing backlash for their reform attempts.

For Malaysia, the urgency is compounded by a pension bill that’s set to rise in the coming decades, creating a huge gap between what the government can afford and what it needs to pay in the future.

Nik Amlizan is adamant that KWAP cannot shoulder this burden alone. “That would not be sustainable,” she says bluntly, stressing the importance of diversifying investments and growing the fund to meet long-term obligations.

Despite the challenges, KWAP has managed to grow its fund from RM41.9 billion in 2007 to RM180 billion today, but it’s not just about growth; it’s about strategic, sustainable returns. To achieve this, KWAP is increasing its focus on private markets, comprising private equity, infrastructure, and real estate, in response to the poor performance of Malaysia's public markets.

The fund’s mandate isn’t solely about managing investments. KWAP is also a ‘retirement companion’ to Malaysia’s civil servants. From outreach programmes to exploring affordable housing projects for retirees, KWAP is taking a hands-on approach in ensuring the welfare of pensioners. 

Read more in this week's issue of The Edge Malaysia.

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