KUALA LUMPUR (Oct 10): The federal government anticipates that growth in emoluments expenditure, which consistently makes up the largest part of its operating expenditure (opex), will remain high next year due to the upcoming phase of the civil service salary hike.
Spending on emoluments — which covers civil servant salaries and allowances — is budgeted at RM109.37 billion in 2026. This represents a 5.6% increase from the revised RM103.52 billion spent in 2025, according to the Ministry of Finance’s (MOF) Fiscal Outlook and Federal Government Revenue Estimates report.
The projected emoluments bill is equivalent to 32.3% of the government’s total opex for next year. At 5.6% year-on-year, the annual growth rate remains above its 10-year average of 4.2%.
The MOF attributed this elevated rate to the second phase of the Public Service Remuneration System (SSPA), which includes a 7% salary increase for certain civil servants, set to take effect in January. “This growth is also attributed to the enhancement of recruitment and career progression of armed forces as announced during the Majlis Amanat Perdana Perkhidmatan Awam 2025,” it said.
This follows the first phase of the SSPA, which saw an 8% wage hike for civil servants effective December 2024. Consequently, the 2025 emoluments expenditure rose 7.9% from RM95.97 billion in 2024.
Retirement charges growth to moderate, pensioners nearing one million
Growth in retirement charges, which comprise civil service pensions and retirement benefits, is expected to moderate next year. This is in line with the rate of newly retired civil servants and pension adjustments under the SSPA.
Retirement charges spending, the fourth largest opex component, is estimated at RM42.8 billion in 2026, up 6.8% from the revised RM40.06 billion in 2025. For 2025, the MOF noted that the number of pensioners and beneficiaries is nearing the one million mark.
The annual increase in retirement charges expenditure for 2025 was 11.6%, more than double 2024’s 5.3%; the 10-year average stands at 7.8%.
Together, emoluments and retirement charges alone account for nearly half of the government’s total opex, at 45%.
Of next year’s budgeted allocation, RM33.7 billion will be used for pension payments, while the rest will cover gratuity payments and cash awards in lieu of accumulated leave.
To address the pension burden, the government previously announced a plan to transition from the current defined-benefit pension scheme to a defined-contribution scheme, similar to the one covering the private sector via the Employees Provident Fund (EPF). The government is currently finalising the implementation of this defined-contribution scheme, MOF said.