Better support: Seniors will be able to live more comfortably through a comprehensive social security scheme. — 123rf.com
AS Malaysia is expected to be a super-aged nation by 2057, current economic woes portend a looming financial crisis facing those living out their golden age.
Insufficient savings have become a chief concern among experts who say the country’s current social security net is seeing many falling through the cracks due to the lack of comprehensive, universal coverage.
As of May this year, only 30% of Employees Provident Fund (EPF) contributors had sufficient savings based on their age groups.
“If we don’t prepare people for a pension system that is comprehensive, then the nation will be in trouble,” says EPF strategy management head Balqais Yusoff at a recent talk on “Strengthening Malaysia’s Retirement System”.
Not many Malaysians are financially ready for life after retirement, including those with existing savings. — Filepic/The Star
The event, which detailed the possibility of Malaysians enjoying better financial security in their advanced years, involved notable experts in the field: global social protection systems consultancy Development Pathways’ Dr Stephen Kidd and prominent social security economist Dr Amjad Rabi.
Accompanied by multitudes of charts exhibiting the need to reform Malaysia’s retirement system, the experts outlined several proposals for the country to have a clear road map in navigating an ageing nation, including the setting up of a streamlined social security structure as well as a tax-financed pension system for all, similar to the ones implemented in New Zealand and Sweden.
Universal pension
Kidd says Malaysia can implement a universal pension scheme which will see senior citizens, upon reaching retirement age of 60, enjoying an income of at least the minimum wage rate.
As of now, Malaysia’s pension system is commonly applicable to retired civil servants. The payment is based on their last drawn salaries and allowances, among others.
However, payment under a universal pension scheme is commonly tiered on a flat rate funded by taxation.
The system will allow all senior citizens, regardless of whether they have been in the workforce or otherwise, to receive a tax-financed monthly income as an added social security measure.
Kidd: Malaysia can implement a universal pension scheme which will see senior citizens enjoying income at least at the minimum wage rate. — Photos: Handouts
Kidd points out that many countries have implemented such a system including Bangladesh, Brunei, Sweden, Nether-lands, and New Zealand.
“The amount given will be equal for all and guarantees a minimum income for senior citizens.”
Kidd stresses the positives of a comprehensive old-age pension system, which includes strengthening the dignity of older persons, reducing depression, and increasing financial ability to cover personal expenses.
“At the same time, the impact on households and families includes reduced poverty and inequality as well as increased livelihood investments. Older people tend to spend on goods,” which will take the form of an economic spillover effect.
Regarding the costs of implementing the universal pension scheme, Kidd says it will depend on Malaysians’ willingness to pay taxes at a higher or certain fixed rate.
Kidd points out that in Sweden, for example, the people do not mind paying a higher tax rate because they will receive something in return.
He says other countries have no qualms about paying broad-based consumption tax, such as a Goods and Services Tax (GST) for instance, as long as they receive world-class services in return.
According to Kidd, there was a debate on the implementation of GST and it turns out that people will resist it if they receive services that are poor in quality.
“If you are getting a universal pension and universal child benefits, people will be happy to do it. People will see that it makes sense to pay more tax because you will live in a better society.
“This is why in other countries where you have a higher tax rate at 45% to 50%, people are very happy to pay the tax there. They don’t complain because they are getting world-class services in return,” he says, pointing out that, for instance, people who left Sweden will always want to come back.
When asked about the resilience of the universal pension system against inflation, Kidd says indexation of the benefits to inflation will see resistance to the latter each year.
Streamlining schemes
Amjad says Malaysia needs to develop an inclusive social protection system which entails coverage across all groups, adequacy of benefits, long-term sustainability, and intergenerational equity.
(Intergenerational equity, as defined by the United Nations, is a principle for institutions to construct administrative acts that balance the needs of the current generation and the long-term needs of future generations.)
Amjad says such a comprehensive system can provide streamlined benefits across groups –right from the vulnerable and families to the elderly.
“When it comes to social security coverage, the nine focal aspects that must be looked into are support for family and children, invalidity, old age, maternity, sickness, unemployment, work injury, medical care and finally the death of breadwinners.
“The overall system should promote social solidarity, inclusivity, and cross-subsidisation, which means from both working and non-working groups to those with the ‘haves’ and ‘have nots’.
“The system should create synergies and coordination between the different arrangements to ensure efficiency, impact and coverage.”
Amjad: Malaysia needs to develop an inclusive social protection system which entails coverage across all groups.
Alluding that it will be a challenge for Malaysia to move towards such a system, Amjad says, currently, the country utilises about 110 social assistance programmes for a myriad of issues, including “assistance for victims of wild beast attacks” under the Welfare Department.
“For now, [the system] is fragmented, inefficient and costly.”
Political will
Kidd says change can only occur if progressive leaders have political will.
He contends that a universal pension scheme, for example, is not a populist measure but represents true reform in helping people to live out their retirement years with dignity.
“The ability to retire in a degree of personal comfort, without worry and with dignity, is the least that citizens can expect in a modern, developed economy,” says Kidd, quoting former New Zealand deputy prime minister Sir Michael John Cullen.
Kidd says, in general, a universal pension scheme is an opportunity for progressive politicians to make a difference.
“This is not populism. These are good policies that benefit citizens through the redistribution of wealth in the country. Good politicians will, of course, reap good political rewards.”
Kidd also suggests that the retirement age be increased from 60 to 66, which can help senior citizens save more for their retirement years.
Balqais: There are differences between universal coverage and universal benefits, and Malaysia should implement both frames.
Balqais says there are differences between universal coverage and universal benefits, and Malaysia should be moving towards implementing both social security frames.
“Malaysia is a signatory to Sustainable Development Goals [or SDGs, under the UN]. If you read the SDGs, all of these principles, the Universal Declaration of Human Rights, whereby everybody deserves social security, is embedded within the SDGs.
“Like it or not, Malaysia has to do it. We signed it along with 190 countries. These are international treaties that provide guidelines to ensure 2030 goals for development are achieved.”
