Prime Minister does not understand the issue
Public sector employees under the EPF scheme deserve better treatment for their loyal service
by AJ Patrick
Aliran Monthly Vol 24 (2004): Issue 10
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He said that the Government servants should take the initiative to find out as much as they could about the benefits provided before opting for either the pension scheme or the Employees Provident Fund Scheme (EPF).
He said that they “cannot just wait to be spoon-fed” and added that he was sure that “if they tried to seek the necessary information they would be able to get it”.
Not informed of the benefits
It must, however, be made known that when Public Sector employees were given the option to choose between the EPF scheme and the pensionable scheme, they were not informed of the benefits available either in the EPF scheme or the pensionable scheme. While the Pension Act provided some details regarding the pension benefits, there was no information concerning the EPF scheme, except for the rate of EPF contributions and the mode of payments.
Prior to 1975, employees in the Statutory Bodies and Local Authorities were treated as non-government servants and, therefore, were in the EPF scheme, except for a very few who had opted for the Government Suffian Salary Scheme earlier on which provided for pension and gratuity benefits. However all employees in the Civil Service were in the pensionable scheme then.
On 15 January 1975, the Harun Salary Scheme was implemented for employees in the Statutory Bodies and Local Authorities. Serving permanent employees were given the option to choose between the EPF scheme and the pensionable scheme.
Before 1975, the employees in the Statutory Bodies and Local Authorities enjoyed a salary scheme that was 10 per cent higher because of their contribution to EPF. The Harun Salary Commission also provided a salary structure which was also 10 per cent higher than that of the Suffian Salary Commission.
The Cabinet Salary Committee which was set up in 1976 to review and co-ordinate the varioius salary structures recommended by Suffian Commission, Aziz Commission and the Harun Commission, standardized the salary schemes of both the Statutory Body/Local Authority employees and the Civil servants.
While employees in the Pension Scheme were entitled to a monthly pension — 50 per cent of last drawn salary on completion of 25 years of service — and a gratuity on retirement calculated at 5 per cent of the monthly salary for every completed month of service, those on the EPF scheme were entitled to 10 per cent of the employ-ers’share of the EPF contributions, including accrued dividend. The 10 per cent EPF contribution by employers was 100 per cent more than the statutory rate of EPF contribution of 5 per cent.
While the Government enhanced the gratuity payment by 50 per cent from 5 per cent to 7.5 per cent of the EPF contribution was kept at the statutory rate, unlike in the past when employers had to contribute more than the statutory rate. This did not provide any added advantage to this group of employees. There was no extention of any similar benefit to those who opted for EPF.
The Harun Salary Commission and the Cabinet Salaries Committee provided terms and conditions of service which included medical benefits and government housing loan in addition to superannuation benefits for employees in the Public Sector either in the form of pensionable scheme or EPF scheme and employees had to opt for either one. They only knew the pension and the quantum of gratuity that they would receive as well as the EPF rates of contributions and the various mode of payments to be made. Other details such as medical benefits and the “golden handshake” for accumulation of vacation leave was not specified.
Medical benefit denied
While employees under the pensionable scheme and their dependents are entitled for free medical treatment at Government Hospitals, including at the IJN, on their retirement, such benefits were, however, denied for those who opted to remain on the EPF scheme.
The General Orders Chapter “F” provides details of the medical benefits for employees in the Public Sector and clarifies those who are entitled to this: pegawai - bermakna mana-mana pegawai atau pesara dalam Perkhidmatan Kerajaan Malaysia atau mana-mana Negeri. (Officer means any officer or retiree in the service of the Government of Malaysia or any of the states.)
The various Statutory Bodies and Local Authorities had subsequently adopted this General Orders and as a result, the employees of these two bodies were then entitled to the medical benefits as provided for under the General Orders (GO).
By virtue of this definition in the GO, all retirees (pesara) — including those under the EPF scheme and their dependents — should be entitled for similar benefits as those enjoyed by retired employees under the pensionable scheme. However, those on EPF scheme are denied this medical facility and consequently had to pay in full according to the rates applicable to the general public. As a result, these retired employees end up paying hefty medical bills when they are hospitalised.
It is pertinent to note that LLN, previously a Statutory Body and currently a privatised Agency, continues to provide medical benefits to their retirees and their dependants, including those on the EPF Scheme, at private hospitals, including Specialist centres and Government hospitals.
While employees on the pensionable scheme are eligible to receive payment in cash for their accumulated vacation leave — (known as “Golden Handshake”) — up to a maximum of 120 days on retirement, such privileges are not extended to those on the EPF scheme by some employers in the Public Sector — unlike the Malaysian Rubber Board, etc — and are therefore required to use up their accumulated leave prior to their retirement.
But according to Service Circulars, No. 3 of 1983 and No. 4 of 1993, those on the pensionable scheme and the EPF scheme were permitted to accumulate their vacation leave for a period up to 90 days and benefit from the “Golden Handshake” i.e. cash payment. There was no discrimination.
There are cases when employees could not use up their vacation leave because their leave application was rejected due to exigencies of service. But they don’t receive payment in kind for the leave not utilised. The circulars in force then did not state that this was only applicable to those on the pensionable scheme.
The present Service Circular No. 7 of 2003 which came into effect ten years later after Services Circular No. 4 of 1993 unfairly states that this is only applicable to those on the pensionable scheme. This decision was made retrospective and therefore denied all those who were elligible for the “Golden Handshake” under the earlier Service Circulars. With one stroke of the pen, benefits given earlier were taken away without any qualms.
Housing loan and interest
Employees in the Public Sector can optionally retire at the age of 40 years. The relevant Service Circular Letter No. 1 of 1991 issued on 11 April 1991 does not specify that it is applicable only to those on the pensionable scheme. However, employees on the EPF scheme opting to retire at the age of 40 years are treated differently and harshly. These employees who had been paying 4 per cent interest previously for their housing loan while in service, are now forced to pay 7 per cent interest after retiring optionally while their retiring counterparts on the pensionable scheme continue to enjoy the 4 per cent interest rate after their optional retirement.
This is totally unfair. When employees on the EPF Scheme applied for the Government housing loan, they were not informed that they had to pay the increased interest rate of 7 per cent when exercising optional retirement at the age of 40.
Employees in the Public Sector exercising their optional retirement at age 40 are normally required to give 7 to 8 months’ notice. However, those public servants intending to contest as candidates in either the State or Parliamentary elections give less than a week’s notice and are eligible for all the benefits. This double standard is not only unfair but difficult to understand.
Datuk Seri Abdullah had explained in Parliament that the EPF contributions withdrawn in a lump sum on retirement by those on the EPF scheme is higher compared to the “compensation” paid out under the pensionable scheme. This is certainly misleading and not true. About 40 per cent of the EPF contribution comes from the employee and the remainder 60 per cent EPF from the employer. When this is compared with the gratuity of 7.5 per cent for every completed month of service and the 50 per cent pension payable to the government servant over the years far exceeds the employer’s 60 per cent share of the EPF contributions. According to the Harun Commission, by comparison, this 60 per cent contribution from the employer represents only 3/4 of the total sum that an employee on the pensionable scheme receives.
Diminishing value of money
Furthermore, the EPF dividend which used to be around 7 per cent in 1976 and 8.5 per cent between 1983 - 1987 had dwindled to around 4 per cent, thus reducing the quantum receivable on retirement. The diminishing value of money affects the purchasing power of the ringgit whereas the pension and gratuity is based on the last drawn salary.
Before 1975, some Statutory employers, such as those from the Rubber Research Institute of Malaysia (RRIM) ensured that to meet the objectives of the EPF, retiring employees would on retirement receive a sum of money which, if invested at 8 per cent per annum, would provide 60 per cent of their terminal salary. If this objective was not met, the RRIM would augment any shortfall with a sum of money by way of retirement benefits sufficient to achieve that objective. Unfortunately this noble objective, which would have greatly helped those in the EPF scheme, has not been given cognizance by both the Harun and the Cabinet Salary Committee.
In comparison, Public Sector employees on the EPF Scheme are worst off than many of those in unionised private sectors. These private sector employees are better off because of their Collective Agreements (CA) which provide for retirement benefits between one to two months salary for every completed year of service. This is in addition to their EPF contributions. The EPF savings received on retirement can be substantial as employees of Corporatised Agencies such as EPF Board, Socso, etc, contribute 17 1/2 per cent, while there are also some private sector employers who contribute more than the statutory rate of 12 per cent of EPF contribution.
New employees who opted for the EPF scheme on or after 12 April 1991 in keeping with Service Circular Letter No. 2 of 1991 are not allowed to contribute to the SOCSO scheme, unlike their counterparts who opted to remain in the EPF scheme prior to 15 January 1975 and who could participate in the SOCSO scheme. In the event of death of an employee, his dependants will not be eligible for the survivor’s pension and in the event of incapacitation of the employee he will not be eligible either for the invalidity/disability pension because he is not covered under the SOCSO scheme.
It is rather regretable that employees were not properly briefed regarding the implications of opting for the EPF scheme. When the salaries were revised under the Harun Commission and the Cabinet Salaries Committee, the employees were given the opportunity to choose between the EPF scheme and the pensionable scheme. However, under the Sistem Saraan Baru (SSB) and the Sistem Saraan Malaysia (SSM) which provides for salary revisions, no option was given to those on the EPF scheme to opt for the pensionable scheme.
Loss of benefits and difficulties
Government employees who opted for the EPF scheme in April 1991 are still in service, while their counterparts in the Statutory Bodies and Local Authorities, who had opted for the EPF scheme in January 1975 had already retired from service and they are the ones affected now by the loss of the various essential benefits and find themselves in difficulties.
Decision makers in the Government, who are in the pensionable scheme, must understand and acknowledge the plight of those in the EPF scheme who are in dire need of government assistance. Unfortunately our planners not affected by this loss and therefore are unable to appreciate their plight.
The Government must be fair to those serving and retired employees in the EPF scheme by either extending them similar benefits enjoyed by those on the pensionable scheme, such as medical benefits after their retirement, the “Golden Handshake” and interest rate of 4 per cent for those who had exercised optional retirement or give them another option to be on the pensionable scheme. This would be the 3rd option.
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