Public service pension fund faces MOP6.4b shortfall, gov’t warns

[Photo: Renato Marques]

The Secretary for Administration and Justice, Wong Sio Chak, has acknowledged that the public administration staff retirement and pension fund may face a shortfall, with total regular benefit payments projected to reach MOP6.402 billion in five years’ time.

Implemented on January 1, 2007, as a defined contribution plan, the Macau Civil Service Provident Fund Scheme is funded through monthly joint contributions from both public employees and the government, calculated on the basis of staff salaries and seniority bonuses. By the end of last year, the scheme’s net distributable assets had surpassed MOP45 billion, covering more than 24,000 members.

As of the end of June, the scheme had 6,465 active contributing members, averaging 51.9 years of age and 26.4 years of service, with 6,577 periodic benefits currently in payment – including 6,056 retirement pensions and 521 survivors’ pensions – and retired members averaging 65.3 years old.

At a recent Executive Council (ExCo) press conference, the Pension Fund Administrative Committee president, Diana Maria Vital Costa, who chaired the session, forecast that by 2031, benefit recipients would rise to 9,150, while contributing members would fall to 3,290. Notably, the civil service retirement and survivors’ scheme has been closed to new joiners since January 1, 2007, meaning that as active members retire, the contributor base shrinks further while the beneficiary roll continues to expand.

With a retirement peak looming over the next five years that is expected to dramatically widen the scheme’s fiscal imbalance, the pension fund has prompted the government to introduce a bill on “Reinforcing the Financial Resources of the Pension Fund.” The draft law would allow the government, without affecting the Fiscal Reserve legal framework, to allocate a portion of the annual central budget surplus – as determined by an order issued by the Chief Executive  to the fund’s yearly budget.

As noted by Wong, current contributions to the civil service retirement and survivors’ scheme amount to about MOP795 million, leaving a deficit of MOP2.773 billion after existing transfers are taken into account, with projections indicating that by 2031, retired members will number 9,150 while active contributors will dwindle to 3,290.

The pension fund disclosed that the existing retirement and survivors’ scheme maintains a diversified asset base, divided into two principal categories: an international investment portfolio consisting of global equities and bonds, and a fixed deposit portfolio. From the fund’s inception in 1987 to the end of June this year, the annualized return on total investments stood at 5.8%.

Wong added that the government would determine annual appropriations based on the number of retirees each year, with the bill accordingly mandating a five-year review mechanism.