MALAYSIANS are living longer, which is undoubtedly a good thing.
We live 11 years longer than we did in 1970. The life expectancy at birth of a male then was 61.6 years and for a female, 65.6 years. By 2015, it had increased to 72.5 years for males and 77.4 years for females.
“Life expectancy at birth” is a statistical measure that reflects the overall mortality rate at the time – the number of people dying at different ages that year. But as medical science, nutrition, safety standards, incomes etc, improve, people tend to live longer than what was predicted at their birth (so those born in the 1970s should not despair!).
The older you are, the longer you live, especially if you are a woman. A man retiring at 60 can expect to live to 78.4 and a woman till 80.9. As a result, we now face a new risk – longevity risk – which is the risk of living longer than our savings can last.
In the 1970s, when people lived shorter lives and retired at 55, they needed savings to last a few years till their death.
Now, we need enough to last 20 or more years (a man who makes it to 75 can expect to live till 83.7, a woman till 84.8), which is a tall order even for someone who has worked close to 40 years.
Fertility rates have been falling too, from six babies per woman of child-bearing age in the early 1960s to two in 2015.
The ratio of old people to working-age people has already increased significantly since 2000 and is getting higher; and it will continue to rise as we continue to live longer and have fewer children. In short, our population is ageing. We are going to see an increasing number of people over the age of 60 working. Shop assistants, cashiers, and taxi and Grab drivers will be older, and fast-food restaurants will find that retirees are the best employees. We already see this in Singapore and Japan. There is no need to feel pity; the retirees will need the income and with 20 more years to live, they cannot be expected to just stay at home and watch television.
Some retirees will be unable to work and without a family able (or willing) to support them. Singapore already provides aid for retirees with very low incomes and we may soon have to do the same. Our public health programmes will have to include teaching people how not to get sick – it is better and cheaper to not have diabetes than to seek treatment for it.
For those who have earned enough to save enough, new financial products will become available. Annuities, for example, that guarantee a retiree who buys one a certain income per month for as long as she lives (if she lives longer than expected she gains and if she does not, then her heirs will have lost out on an inheritance they might have received). Reverse mortgages, where the retiree effectively sells his house (assuming he has saved enough to own it) to the bank and in return gets a monthly income and the right to live in his house until he dies, might also become popular. Legislation and government promotion are probably required for these products, and we need to ensure that there is sufficient consumer protection.
For those who are still working, we need to hasten the implementation of policies that increase incomes (for example, the New Economic Model), so that more can retire with enough savings.
Public policy tends to be made by the old, so we must be vigilant in ensuring that the young get their fair share. Raising the retirement age further for example (Norway’s retirement age is 67), while good for those in their 60s, may make it more difficult for the young to find work. Public funds will be needed to care for the old, but the young have a claim on these funds too – they need education, training, child care, sports facilities, unemployment benefits (why should only the old get aid?) etc. Should not the old – who have had their chance – give way to the young?
Demographic changes take a long time to happen but are very difficult to reverse: we cannot make people live shorter lives and no government has yet been able to make its citizens get married or have more babies. The difference between Japan (which has a fast ageing population) and the United States (which does not) is that the latter allows migrants in, who tend to be younger and have more babies.
Are we willing to allow more migration or are we going to accept an ageing population?
Datuk Charon Wardini Mokhzani is the managing director of the Khazanah Research Institute and would like to thank his colleagues for their research for this article. More information on this and other research by the Institute can be found at www.KRInstitute.org
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