AS Malaysia joins the rest of the world in becoming an ageing society, it has become imperative for the government to address the challenges that increasing life expectancy pose to social security arrangements. Increasing life expectancy brings with it sweeping changes in population needs and capacities. The most evident sign is the strain on the pension system as the number of people requiring protection and support is on the rise.
There are growing concerns that many are not prepared for a comfortable retirement, or might have inadequate savings for senior years. The concern is about the quality of life. Increasing life expectancy means a longer time will be spent in retirement.
It would be ideal if everyone could ensure their retirement funds are adequate by the time they retire. However, the reality is that it is almost impossible for many to secure their future and have a comfortable retirement. The retirement schemes in Malaysia do not cover everyone. The pension scheme was designed for old age protection for public sector employees.
The Employees Provident Fund (EPF) provides retirement benefits for private sector and pensionable employees. The protection against work injuries for formal sector workers is provided mainly by the Social Security Organisation (Socso).
These schemes have limitations. The pension scheme for civil servants covers only about 10 per cent of the working population. Since the pension amount is tied to the last-drawn basic salary, a small percentage of retirees still live in poverty.
Though the formal sector employees have better protection under the EPF scheme, the majority of them have very low savings. It has been reported that out of 14 million EPF members, only eight million are actively contributing to it, and 46 per cent have less than RM10,000 in their accounts.
To aggravate the situation, the self-employed and informal workers are not covered by EPF, Socso, or the civil service pension. The design of the social security scheme provides protection only to employees who are within EPF and Socso’s databases.
Though there are schemes for employees in the informal sector, contributions are voluntary, not compulsory. The government has a narrow window of opportunity to address the complex issue of social protection and to ensure a solid social security infrastructure for the nation’s ageing society.
If it’s not addressed now, we will see more people aged 60 and over living in poverty or still working to sustain themselves financially. Most of the existing social assistance schemes cannot adequately cater to the needs of the older age group, the result of fragmented policies managed by multiple agencies at the federal and state levels.
It is time that we reviewed the sustainability and adequacy of the pension and social security systems in ensuring that basic needs are met, resilience against poverty is achieved and economic potential is maximised. Reassess the social protection system in terms of coverage, adequacy and equity. The social protection programmes should include self-employed and informal sector workers.
Addressing the lack of retirement savings in the private and informal sectors is the next best step. Strengthening public pension schemes and promoting the private pension market are among the priorities given by South Korea as her traditional system of old-age support within families is on the decline.
The United Kingdom links retirement age to life expectancy as it believes this could improve the sustainability of the pension system. In Japan, everyone aged between 20 and 59, irrespective of nationality, must be covered by the National Pension System and must make contributions.
Malaysia should emulate the UK, South Korea, Japan and Australia, which have re-examined their systems of social protection and put reforms in place. A national pension system that covers a range of policies and programmes to combat lifelong consequences of poverty and exclusion is necessary to strike a balance between the provision of safety nets, financial resilience and human capital development.
Written by Director of SWRC, Professor Emeritus Datuk Norma Mansor.