KUALA LUMPUR (Oct 9): The federal government is on track to transition to a defined contribution mechanism to manage its growing pension liabilities, as retirement charges are projected to rise to RM44.6 billion in 2027 from RM42.8 billion in 2026.
The projected retirement charges for 2027 is an increase of 4.2% from 2026's sum, though the growth is slower than the 11% estimated for 2026, it noted in the latest Fiscal Outlook and Federal Government Revenue Estimates report.
The larger increase in 2026 is partly due to pension payment adjustments following the implementation of the Public Service Remuneration System — which require the pensions of retirees to be adjusted using a matching formula whenever active civil servants receive a salary restrcturing or increase — as well as an increased pool of pensioners.
Malaysia was officially marked as an ageing nation in 2021, when citizens aged 65 and older reached 7% of its total population. As of 2026, 8.4% of Malaysia’s population are aged 65 and above, according to the Department of Statistics.
Under the new defined contribution mechanism, civil service retirement benefits for new permanent hires will depend on accumulated contributions and investment returns managed by the Employees Provident Fund, rather than guaranteed lifetime payouts under the current defined-benefit scheme.
However, the report did not specify an implementation date for the system, which was proposed to curb the country's ballooning pension liabilities but will not apply to existing civil servants.
Civil service wages, pensions to swallow RM156.2 bil or 41.4% of opex
Despite rising in absolute terms, retirement charges are projected to account for 11.8% of the government's total operating expenditure (opex) for 2027 — unchanged from 2026 — as the overall operating spending is expected to grow 3.8% to RM376.8 billion from the revised estimate of RM363.1 billion in 2026.
Meanwhile, emoluments — comprising wages and allowances for civil servants — are projected to increase by 2.9% to RM111.6 billion in 2027, compared with an estimated 6.9% to RM108.4 billion in 2026. It remains the largest component of the 2027 opex, at 29.6%.
Together, emoluments and retirement charges are budgeted to account for RM156.2 billion or 41.4% of the federal government's opex for 2027.