PETALING JAYA: With Malaysia’s population aged 65 and above growing faster than other age groups, a more inclusive social protection system is needed, according to AmInvestment Bank (AmInvest) Research.
During the Covid-19 pandemic, early withdrawals of pension assets had also left gaps in many private households’ old-age provision, while the growth of life insurance and pension fund assets slowed down.
Old-age dependency, the research house said, would rise from every 10 working age adults needed to support one older person in 2020 to three in 2050.
Eventually, this will strain a country’s fiscal revenues and expenditures.
Sunway University Business School professor of economics Dr Yeah Kim Leng said private sector workers do not have adequate old-age social protection, particularly on the income side.
“The gap has widened as a consequence of rising life expectancy, low wages and a large informal sector that falls outside the Employees Provident Fund (EPF) safety net,” he told StarBiz. He said old-age assistance programmes such as Bantuan Warga Mas have limited coverage and benefits which cover only about 40% of the minimum basic income needs according to Bank Negara data.
“Social spending on welfare, health and skills enhancement will need to increase in the coming years along with programmes to encourage higher savings during the active years,” he said, adding that coverage for EPF and the Social Security Organisation be extended to the informal and gig workers.According to Allianz group’s Global Pension Report released last Thursday, Malaysia’s pension system received a total score of 4.3 – below the Asian region’s average sustainability score of 3.6 and global average sustainability score of 3.7.
The study looked at the viability of 75 pension systems around the world with scores ranging from one (very good) to seven (very poor).
In the report, the insurance group said Malaysia still has a rather young population, where the old-age dependency ratio is expected to double from around 11% to 26% in 2050.
The main reason for concern for Malaysia is the long-term sustainability of its pension system, added the report.
“Increasing the retirement age in line with the developments in life expectancy could help to improve sustainability,” said Allianz, adding that further efforts were also needed to improve the adequacy of the pension system because the coverage is still comparatively low in international comparison.
Yeah said countries with comprehensive social protection policies are better prepared to address not only the challenges of ageing population but also other social, economic and climate change shocks.
“The successful countries invest heavily in designing and building robust social protection systems that, in turn, underpin the rise in economic and social stability,” he added.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said a holistic centre is needed so Malaysians would know where to go and seek help in respect to social security.
“Perhaps, by having an extensive awareness campaign about what social security is all about can be a good start. Such awareness would drive the right response and behaviour. “Related to this is also the level of financial literacy which can be deemed as a survival skill in today’s day and age,” he added. AmInvest said currently, only 0.5% of 7.7 million EPF active members had savings of RM600,000 in 2021, which translates to RM2,500 per month for the next 20 years of retirement.
For context it said the Belanjawanku reference budget highlights that RM2,520 per month will be needed for a single senior’s dignified standard of living, including food, housing, transportation, utitilies, healthcare, childcare, ad-hoc expenses, social participation and discretionary spending
“Currently, social protection coverage in Malaysia is narrow and inadequate with only 9.1% of intended beneficiaries being covered versus an average of 55.1% for Asia and 12.8% for the world,” the research house said in a recent report following a webinar on the topic, which was presented by prof Datuk Norma Mansor, director of Social Wellbeing Research Centre in Universiti Malaya and president of Malaysian Economic Association.
AmInvest said the low levels of female workforce participation and the rise of informal employment trends had led “to a missing ‘middle’ coverage with 61% of the working age group not covered by any mandatory contribution scheme, while 30% of intended beneficiaries do not receive any social assistance.”
According to the research house, Norma views that Malaysia’s social protection, which is currently based on a welfare model targeting poverty groups, should move towards a strategic development structure where a population tends to be more enterprising and willing to take on risks with a reasonable safety net in place.
Hence, she said the country should adopt the life-cycle approach to provide better coverage throughout different stages of life by targeting underlying vulnerabilities.
This also involves labour market intervention to provide more employment opportunities for the elderly, raising the mandatory retirement age according to life expectancy and the nurturing of financial literacy from a young age for sound retirement planning.
Similarly, Allianz said that pension reforms need to go hand in hand with labour market reforms.
“This holds not only true for the emerging economies, where it needs further efforts to improve the formalisation of the labour market, since a large part of the working age population in these countries is still employed in the informal sector without any coverage by the social security system.”
It also holds true for the mature markets in the region, where the labour markets need to be adapted to the needs of a rapidly ageing workforce.
Allianz said countries such as Denmark, the Netherlands and Sweden, which have successful pension systems “had set the course for sustainability very early on, at a time when the demographic bomb was still ticking quietly”.
It said the linchpin for the long-term stabilisation of pension systems remains the adjustment of the retirement age to the development of future life expectancy.
However, the insurer contends that attempts to increase it often spark fierce protests, as seen most recently in France, where the government decided to increase the retirement age by two years to 64, or Uruguay, where the government plans to raise the pension age from 60 to 65 years.
“Only eight of the 75 countries that we cover in the Allianz Pension Index have adjusted the retirement age to the developments in life expectancy,” it said.
