Pension reform on track as retirement charges projected at RM44.6 billion in 2027
The proposed contribution-based system would cover new permanent civil service hires, but no implementation date has been specified.
The federal government says its move towards a defined contribution pension system remains on track, with retirement charges forecast at RM44.6 billion for 2027, against RM42.8 billion in 2026. Its latest Fiscal Outlook and Federal Government Revenue Estimates report projects a 4.2% increase.
Under the proposed mechanism, retirement benefits for new permanent civil service recruits would be based on contributions accumulated and investment returns, with the Employees Provident Fund managing the funds. This would replace guaranteed payments for life. Existing civil servants would not be covered by the change, and the report gives no date for implementation.
The projected rise in retirement charges is slower than the 11% increase estimated for 2026. The report partly attributes the larger 2026 increase to pension adjustments linked to the Public Service Remuneration System and a growing number of pensioners.
Retirement charges are expected to represent 11.8% of operating expenditure in 2027, the same share as in 2026. Overall operating expenditure is forecast to rise 3.8% to RM376.8 billion, compared with a revised RM363.1 billion estimate for 2026.
Civil service wages and allowances are projected at RM111.6 billion in 2027, up 2.9%, and would remain the largest operating expenditure component at 29.6%. Combined with retirement charges, they are budgeted at RM156.2 billion, representing 41.4% of federal operating expenditure.
