The State of the Nation: Hammering out public pension reform with seven months left on earliest interim contracts

Friday 18 Sep 2026

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This article first appeared in The Edge Malaysia Weekly on July 6, 2026 - July 12, 2026

THREE years after the cabinet’s bold decision in July 2023 to end pensions for new civil servants, the government is still “reviewing and refining details” of the new public service “contributory permanent appointment scheme”, reflecting the delicate balance needed to secure public buy-in for the fiscal reform.

Prime Minister Datuk Seri Anwar Ibrahim did not specify when the new scheme would be ready in his written parliamentary reply dated June 25, 2026, to former defence minister Datuk Seri Hishammuddin Hussein, who sought clarity on the fiscal impact of the new civil service salary scheme and an update on pension reform.

Areas being fine-tuned include “retirement benefit packages and the appropriate implementation measures” to ensure that the new scheme “will safeguard the country’s fiscal position while continuing to attract the best talent and ensuring that the welfare of public servants remains protected and preserved”, Anwar said.

It remains to be seen whether details of the new scheme will be ready within seven months, when the first batch of the three-year interim contracts used to hire civil servants from Feb 1, 2024, comes up for renewal at end-January 2027.

Or will the Public Service Department (JPA) be forced to seek an extension of these interim contracts to address the matter after the 16th general election (GE16), which must be held by mid-February 2028?

It is understood that close to 20,000 civil servants have been hired on the interim three-year contracts since Feb 1, 2024, pending finalisation of benefits under the new scheme. This excludes members of the armed forces and police, where reforms are being handled separately.

The number of parties involved is not limited to new civil servants, as public pension beneficiaries include not only pensioners but also eligible legal dependants, including spouses and legally recognised children aged under 18.

Close to 30% of the 810,000 public pension recipients in 2024 are derivative beneficiaries, such as widows and widowers of deceased civil servants, while pensioners make up just over 70%. In other words, pension payments continue even after a pensioner’s death, as long as an eligible dependant remains entitled.

The “contributory permanent appointment scheme” essentially means civil servants hired from Feb 1, 2024, will have to save for retirement through the Employees Provident Fund (EPF), like private-sector workers. This was affirmed by the Fiscal Outlook Report 2026, which states that the government is expected to finalise the implementation of a defined-contribution (DC) scheme to replace the defined-benefit (DB) pension scheme for public servants. “The new scheme will be administered by EPF, while Retirement Fund Inc (KWAP) will continue to manage the defined-benefits pension scheme under the Retirement Fund Act 2007,” says the report released last October alongside Budget 2026.

Putrajaya’s sizeable public pension obligation reflects “the growing number of pensioners and beneficiaries, which is now approaching one million”, the report says.

Instead of the gargantuan “RM120 billion by 2040” public pension obligation figure — cited by Deputy Prime Minister Datuk Seri Ahmad Zahid Hamidi and Finance Minister II Datuk Seri Amir Hamzah Azizan in January 2024 ahead of the Feb 1, 2024, cut-off date — Anwar said Putrajaya’s public pension obligation is set to hit RM46.36 billion by 2030.

The figure appears somewhat conservative, given that Putrajaya’s retirement charges are projected at RM42.8 billion in 2026, up from RM40.06 billion in 2025 and RM35.9 billion in 2024.

With sizeable subsidies and social assistance bills driving up Putrajaya’s operating expenses faster than its revenue can grow, the federal government has since 2018 withdrawn RM29.5 billion from KWAP to help pay 11.9% of its public pension obligation totalling RM247.6 billion between 2018 and 2025. For 2026, KWAP is contributing RM5 billion, or 11.7%, of Putrajaya’s public pension bill of RM42.8 billion to bring the total withdrawn from KWAP to RM34.5 billion.

Amir Hamzah says if the burden can be lightened, the surplus can be channelled towards education, facility improvements and other areas important to the country and its people.

Brief timeline of Malaysia’s civil service pension reform

2018: Putrajaya withdraws RM4.5 billion from Retirement Fund Inc (KWAP) — its first such drawdown since the fund’s incorporation as a statutory body on March 1, 2007 — to help pay its pension bill of RM25.18 billion in 2018.

September 2019: Public Service Department (JPA) director-general Borhan Dolah tells reporters that a special public service reform committee meeting held in October 2018 had decided that civil servants hired from 2020 onwards would no longer receive a pension but be placed under an improved contractual scheme with better pay and higher allowances. Targeted savings under the new scheme is reportedly RM5 billion a year.

Oct 22, 2019: Prime Minister Tun Dr Mahathir Mohamad tells parliament that the government is studying several mechanisms aimed at easing the fiscal burden without short-changing civil servants. He assures civil servants that their pension benefits remain protected under Article 147 of the Federal Constitution. Article 147(1) reads: ‘The law applicable to any pension, gratuity or other like allowance granted to a member of any of the public services, or to his widow, children, dependant or personal representatives, shall be that in force on the relevant day or any later law not less favourable to the person to whom the award is made.’

Feb 24, 2020: Dr Mahathir resigns as prime minister and dissolves the cabinet after the ‘Sheraton Move’ ends the Pakatan Harapan coalition’s first stint in power

March 2020 to May 2023: During the Covid-19 pandemic, Malaysia imposes three Movement Control Orders between March 2020 and 2021 before transitioning to the endemic phase. The World Health Organization declares the pandemic over on May 5, 2023.

July 12, 2023: The cabinet decides that new civil servants hired for permanent positions will be under contract pending the completion of a new remuneration scheme

October 2023: The Fiscal Outlook 2024 report says the government is considering a shift to a defined-contribution (DC) scheme, as pension commitments are expected to rise further

Jan 15, 2024: JPA director-general Wan Ahmad Dahlan Abdul Aziz announces in a circular that new civil service appointments will be on a contractual basis from Feb 1, 2024, following the cabinet’s decision on July 12, 2023

Jan 24, 2024: Deputy Prime Minister Datuk Seri Ahmad Zahid Hamidi says Putrajaya’s pension bill will reach RM120 billion by 2040 if the existing hiring policy continues. He announces a new scheme requiring all new civil service hires to contribute to retirement schemes such as the Employees Provident Fund (EPF) and the Social Security Organisation (Perkeso)

Feb 1, 2024: New civil service entrants are no longer pensionable and are hired on three-year contracts, pending the formalisation of a permanent contributory appointment scheme

Feb 18, 2025: In a written reply, Minister in the Prime Minister’s Department Zalifa Mustafa tells parliament that the government’s pension bill is expected to reach RM46.36 billion by 2030, and that the new civil service retirement scheme is still being studied

June 26, 2026: Prime Minister Datuk Seri Anwar Ibrahim says the government is fine-tuning a new ‘contributory permanent appointment’ scheme for civil servants, as pension payments are expected to reach RM46.36 billion in 2030 versus RM37.4 billion in 2025. Anwar says improvements to the public service salary structure under the Public Service Remuneration Scheme entail an additional financial implication of RM18.91 billion, without specifying the time frame.

Jan 31, 2027: The first batch of civil servants hired after Feb 1, 2024, reach the end of their three-year contracts, subject to extension or transition to a new permanent contributory system

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