OCTOBER 31 — The recent release of the World Bank’s paper on social pensions in Malaysia is a timely reminder of the extensive work that still lies ahead to build a sustainable social protection system in the country.
As the lead author noted during the forum session at the launch event, the Bantuan Warga Emas (BWE) hardly qualifies as a proper social pension, given its limited coverage — fewer than 160,000 recipients, or roughly 4 per cent of the older population aged 60 and above.
Still, BWE costs around RM1.1 billion per year, and given the present situation with the Employees Provident Fund (EPF), it underscores the urgent need for a multi-pillar approach to our pensions reform.
I cannot help but feel that we are ignoring the elephant in the room.
The Employees Provident Fund (EPF) has about 8.9 million active members who contribute regularly to the retirement savings scheme.
This translates to about 50 per cent coverage of the total labour force in Malaysia.
If Malaysia were to introduce a minimum EPF pension like Singapore’s CPF LIFE annuity that comes with a government-backed longevity guarantee, the fiscal demand for a tax-funded social pension could be significantly reduced.
If you have S$60,000 in your retirement account at age 55, the estimated monthly payout from age 65 would be around S$540 to S$570 on a standard plan, for life.
CPF describes the plan as a national longevity insurance annuity scheme.
We are at an impasse to introduce reforms because key stakeholders could not find a way forward.
The EPF needs to consider several policy levers to achieve more equitable, sound, and sustainable reforms. These may include a) introducing a contribution ceiling, b) enforcing a minimum balance at the 55-withdrawal age (e.g. RM150,000), and c) protecting members against longevity risk through a government-guaranteed, lifelong, pension-like payout at a basic level (e.g. RM1,000 per month) beginning after the minimum retirement age of 60.
The remaining pooled funds would continue to accumulate returns, thereby sustaining pension payments.
Such a system achieves balance through longevity risk sharing, where contributions from those who die earlier effectively cross-subsidise the ones who live longer.
Over time, we can introduce other elements of risk-pooling and redistribution into the enhanced scheme.
If we establish a pension-like payout through the EPF, retirees who already receive a regular monthly income — such as a civil service pension, or an invalidity or survivors’ pension, can be safely excluded from an expanded social pension.
This approach would make a pension-tested social pension scheme far more affordable and sustainable over the long term.
It is crucial that we first strengthen our existing work — and occupation-based pension systems under JPA/KWAP, EPF, and SOCSO, before expanding the means-tested social assistance scheme for older persons (BWE).
At the same time, we must have an honest discussion about broadening government revenue through indirect taxes, such as GST or VAT, while also finding ways to work within current fiscal constraints.
Pension reforms should be guided by clear priorities and fiscal realism.
Above all, these conversations cannot happen in silos. The future of Malaysia’s pension and social protection systems depends on co-ordinated dialogue and reform across all sectors — government, academia, employers, workers, and civil society alike.
*This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
