A Macroscopic View on the Impact of Public Service Pension Scheme in Malaysia

Abstract

The public service pension scheme in Malaysia has become a focal point of fiscal scrutiny due to its escalating costs and implications for economic sustainability. This article examines the scheme's exponential growth, with pension expenditure increasing 321 times between 1970 and 2023, and the allocation of RM18.8 billion in 2023 alone. As Malaysia's population ages rapidly, with the elderly dependency ratio projected to rise significantly by 2040, the current pay-as-you-go model may become unsustainable. The article explores potential reforms, including transitioning to a defined contribution scheme and introducing social pension schemes, to mitigate the financial burden on public finances and ensure the long-term welfare of retirees.