KUALA LUMPUR (June 23): The Edge weekly in its latest edition says that a civil service pay hike is probably bittersweet to Datuk Wan Kamaruzaman Wan Ahmad, CEO of Retirement Fund Inc (KWAP), tasked with growing the fund meant to take over the government’s burgeoning pension liabilities.

In its cover story, the Edge’s Cindy Yeap and Khairie Hisyam Aliman wrote that every salary increment could negate what little progress KWAP has made in the past 10 years to narrow the gap between its fund size and the government’s RM300 billion-plus pension liability.

In an interview with the magazine, Wan Kamaruzaman said: “The truth is that there are gaps that need to be addressed. Overall, based on the latest review this year, the [pension liability] gap remains. We caught up, but … we’re back to square one.”
The weekly highlighted that the KWAP CEO did not reveal the exact size of the gap or impact of the recent civil service salary review to at least RM1,200 a month.

That is not to say he is unhappy about the salary increase; rather, it is an admission of the fund’s mammoth task and the need to tackle a growing public sector pension liability, it added.

The Edge said given the vast difference between its fund size and the government’s public pension liability, it is mathematically impossible for KWAP to close the pension liability gap in the foreseeable future without a sizeable cash infusion. Tight government finances mean a cash infusion is highly unlikely.

In 2015, the federal contribution to KWAP fell to RM500 million compared with RM1.5 billion between 2011 and 2014. KWAP’s 2016 annual report was still pending parliamentary approval at the time of writing.

Yeap and Khairie said that sensing public criticism, Wan Kamaruzaman defends the government’s present handling of the situation, noting that it is still giving and has not taken any money from KWAP thus far: “The government is carrying two burdens right now: contribute to KWAP while also paying pensions and liabilities. So the burden is very, very high. With commodity prices not doing well, I think the government is really in a situation where it cannot give much more than what it’s already giving to KWAP.”

They said that without a sizeable cash injection, KWAP has little hope of bridging the gap in this lifetime as the fund’s need to preserve capital means it cannot take on risky investments that may net much higher returns (or losses).

Already, KWAP is moving to slightly riskier investments such as real estate development to compensate for smaller returns in its traditional fixed income space. 

For more on how KWAP plans to tackle pension liabilities going forward, please get a copy of the Edge for the week of June 26 – July 2 available at newsstands now.

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