Government Pension Scheme: Is It Enough for Retirement?

government pension scheme

Most government servants in Malaysia are eligible to enrol into pension scheme administered by Retirement Fund (Incorporated) or better known as Kumpulan Wang Persaraan (Diperbadankan) (KWAP). What will the pensioner receive and will it be enough for retirement?

What are included in government pension scheme?

1. Gratuity (Ganjaran Perkhidmatan)

This is a one-off payment when the government servant retires. The formula is as below:

7.5% x Months of service x Last-drawn basic salary

(7.5% x tempoh perkhidmatan yang boleh dimasukira x gaji hakiki bulanan yang akhir diterima)

The longer you work, the higher the gratuity. Furthermore, your basic pay also increases as time passes, increasing the payout as you work longer. 

2. Cash Award in Lieu of Leave (Award Wang Tunai Gantian Cuti Rehat) (GCR)

This is a cash award given to government servants who did not have the opportunity to utilise all of their leaves due to exigency of the service. The workers have to opt to convert their extra leaves to GCR during their service in order to enjoy this award.

The formula is:

1/30 × (Last-drawn basic salary + Fixed allowances) × Accumulated leave days (no. of days)

(1/30 x [gaji pokok + imbuhan tetap] x jumlah cuti rehat yang terkumpul sehingga 150 hari.)

The maximum accumulated leave days are 150. The fixed allowances include:

a. Fixed Premier Post Allowance

b. Fixed Housing Allowance (ITP)

c. Fixed Entertainment Allowance (ITK)

d. Fixed Public Service Allowance (ITKA)

3. Pension (Pencen Perkhidmatan)

This is the monthly payment to the pensioner, substituting the salary of the government servant.

1/600 x Months of service x Last-drawn basic salary

(1/600 x tempoh perkhidmatan yang boleh dimasukira x gaji hakiki bulanan yang akhir diterima)

The maximum period allowed is 360 months (30 years of service), equal to a maximum pension of 3/5 (60%) of last-drawn basic salary.

Calculator of government pension scheme

There are calculators available to estimate the benefits above so that we do not have to calculate manually. Click here to access those calculators.

Is it enough?

The answer to this question depends on the individual. If your basic salary in the government sector before retirement is high and the pension can cover your monthly expenses after retirement, it is most likely to be enough. On the other hand, if you have a low basic salary pre-retirement, it is most likely that your pension would not be enough to cover your monthly expenses.

Even for the high earners, the pension may not be enough due to the lifestyle and the eroding power of inflation. Furthermore, the gratuity may be used up not long after it is received if the pensioner does not plan well. After all, most people would want to reward themselves after toiling for so many years, especially when they receive a lump sum during retirement.

To be on the safe side, you should set up your own retirement fund too, even if you enrol in the pension scheme. If the pension is insufficient, you still have a backup fund. Furthermore, it is an unknown whether the pension scheme would maintain its current benefits in the future. Thus, we should not depend entirely on a single source after our retirement. Without planning for your retirement, you risk losing the ability to retire when the time comes.

How can a financial planner help you?

I will help you to estimate your pension benefits when you reach your retirement age. Furthermore, we will determine if your monthly pension is sufficient to support your post-retirement lifestyle. If you would like to create your own retirement fund, I can help you to plan and invest too.

The plan is not set in stone. When your circumstances change, we can always amend the plan accordingly. You just have to inform me. Besides that, we should review your progress at least annually. During the reviews, we will discuss on your investment result and any changes in your goals and objectives. Based on the discussions, we can tweak the plan to accommodate your new changes.

If you are interested in working with me to plan for your retirement, just leave your details by clicking the button below. I will reach out to you and see if we would be a good fit for each other.

Or, join my email list by clicking here to learn more about personal finance if you are not ready to connect yet.

Disclaimer: This post is for informational purpose only. You should use judgment and conduct due diligence before taking any action or implementing any plan suggested or recommended in this article.

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