Change to GPF sought despite extra expense

The Finance Ministry will today ask for the Cabinet’s approval of the amendment to the Government Pension Fund (GPF) law, after big protests two weeks ago.

The amendment will allow civil servants who are now fund members to reap benefits from the government’s old pension scheme. This, however, will add to the government’s financial burden, starting from the 2015 fiscal year, said a source at the ministry. 

“It is estimated that if 730,000 officials – or 75 per cent of 980,000 officials who voluntarily applied for GPF membership – opt out, the government must set aside Bt950 billion to cover their retirement benefits from 2015-2058, or Bt22 billion per annum,” the source said. 

The GPF was established as a mandatory scheme for every government official except those in service before March 1997. Officials who chose to join GPF in 1997 are cut off from benefits provided under the Government Pension Act 1951. A total of 980,000 officials opted to join in, believing the new benefit calculation scheme would result in higher benefits. Two weeks ago, many of them took to the street, demanding the amendment in the Government Pension Fund Act.

Under the Government Pension Act 1951, the officials will immediately receive a pension or gratuity based on their years of service and their age at the point when they terminated their service under the pay-as-you-go system. If they choose to receive the pension at the flat-rate basic, the benefit is equal to their final month’s salary times 2 per cent accrued every year of service. If they choose to take a gratuity, they will receive a lump sum equal to their final month’s salary times the number of years of service.

The unfunded nature of the scheme implies its ability to meet this future obligation. However, the government is setting a budget for these pension expenses, separated into reserve accounts and investments in the Government Pension Fund in order to cover pension payments to pensioners in case of financial crisis. 

The sum amounts to Bt300 billion at present.

Under the GPF law, two major points have been changed. First, the original pension benefit is reduced by using an average of 60 months’ salary rather than the final month’s salary, and the ceiling is not more than 70 per cent of the replacement rate. Therefore the pension is reduced by 12-15 per cent. 

Second, the law mandates that the government accumulate a reserve fund for gratuity and pension payments, implying it is no longer a fully unfunded system. 

Many joined in the belief that GPF’s return would be 9 per cent per annum. 

However, between 1997 and 2012, the average return was 7.05 per cent.

“The Finance Ministry agrees to solve this grievance as soon as possible, to quash complaints and ensure best benefits to all officials,” the source said.

The GPF was established mainly to reduce the government’s burden on retirement benefits to state officials. 

The amendment comes at a time when Thailand is becoming an ageing society, when the number of retirees will spike against a dwindling number of workers.