Ministry weighs options to hike GPF returns

“For example, if the investment return is negative in any year, the government may compensate up to the average bank deposit rate, or if return is lower than the rate of inflation, the government will compensate for the shortfall,” permanent secretary Areepong Bhoocha-oom said yesterday.
“The ministry also plans to change the formula for calculating pensions in order to pay more to those who have served many years in government agencies, such as teachers and soldiers,” he said.
The new package is expected to be submitted for approval to the Cabinet next month or in August and taken up by the House of Representative in the next session, he told participants at the annual meeting of the Government Pension Fund (GPF), which has 1.2 million members. Areepong said he had already consulted with Finance Minister Kittiratt Na-Ranong.
“We discussed how much public funding would be needed to support the scheme and agreed it must stay within the fiscal-discipline framework,” he said.
Some improvements in benefits demanded by some GPF members would cost about Bt800 billion to Bt900 billion over 30 years.
The government’s move is a response to complaints by many members, particularly teachers, who have called for the return of the old pension system that offered a bigger nest egg after retirement.
But the ministry, which sets policy for the GPF, argues that the government cannot afford the previous one because of budget constraints.
The GPF’s return on investment has averaged 6.96 per cent annually over its 15 years of existence, lower than the 9-per-cent predicted at its inception.
Low interest rates have made the fund’s assets grow less than thought. The government also did not raise salaries as much as the ministry had assumed.
As the GPF’s investment philosophy is to protect capital, the yield is not high, Areepong said.
Private fund managers often criticise the GPF for allotting too little to equities, usually less than 15 per cent of its Bt500-billion investment portfolio, while about 70 per cent is in fixed-income assets – government and corporate bonds. They suggest that the GPF increase equity investment to about 20-40 per cent.
Areepong said the weak recovery of the global economy and the European crisis had led to the GPF earning only 2.31 per cent on its investment for members last year. The average three-year return was 6.68 per cent annually.
“Anticipating a rise in interest rates in the local market late this year, the GPF will invest more in government notes, and will invest more in equity and fixed-income assets in Asian markets,” he said.
The GPF will also look for holding opportunities in commodities, infrastructure and global property, he added.
Sopawadee Lertmanaschai, secretary-general of the GPF, urged members to increase their contribution from 3 per cent of their salary to 12 per cent to save more for retirement.