Determinants of Pension Cost

This chapter discusses the issue and factors determining Malaysia’s Pension Cost. This chapter reviews the Defined Benefit Pension Scheme and previous work of pension studies. As a result of the rapidly rising pattern of pension costs for public servants in Malaysia, this chapter examines the determinants of pension costs in Malaysia using data from 1971 to 2020. Three dependent variables have been used: pension cost, operating expenditure (OPEX), and the ratio of pension cost to OPEX. Interestingly, Gross National Product (GNP) size is negatively related to the ratio of pension cost to OPEX. In other words, if Malaysia’s growth rate exceeds the public servants’ growth rate, the pension cost share to OPEX will be reduced. This finding offers a new perspective on the long-term sustainability of the pension system in Malaysia.