Pension scheme needs to be revised, says MIER

Safety net: The facade of Menara KWSP Kwasa Damansara. MIER has proposed the government considers announcing long-term policy direction towards mandatory EPF coverage for all workers in the labour force in phases.

PETALING JAYA: The government must find a way to address the nation’s social protection scheme, as the current coverage is below the global average and its efficacy remains poor, says the Malaysian Institute of Economic Research (MIER).

As of Dec 31, 2022, more than 40% of the workforce was not covered under any formal pensions and retirement programmes, the economic think tank stated in a statement post a policy dialogue recently on priorities ahead of Malaysia’s national budget 2024.

“The key takeaways from the dialogue were the need to address the social protection scheme and to enhance investment facilitation. MIER urges the government to improve its social protection scheme,” the think tank said.

The coverage extension should focus on three main segments, namely, contracts for service workers (formal and informal), business owners and independent workers and the self-employed.

MIER has proposed the government considers announcing long-term policy direction towards mandatory Employees Provident Fund (EPF) coverage for all workers in the labour force in phases, with phase one kicking off with the implementation of a voluntary opt-out mechanism.

MIER said this could be done via the mandatory coverage for the public sector, the auto registration of individuals above the age of 18 into the EPF and the Social Security Organisation or Socso, as well as collaborations with platform providers and relevant bodies to enforce this.

It also advised the government to introduce a contributory national pension scheme (CNP) which will be a pivotal step in establishing Pillar 1 of the Multi-Pillar Pension Framework.

The CNP will aim to promote old-age income security, backed by the EPF as the main institution to manage it.

“In terms of the contribution mechanism for the CNP, a portion of the current EPF contributions will be diverted into the CNP fund, rather than increasing the contribution rate. It provides a more seamless transition for EPF members for the integration of the CNP structure,” MIER said.

Another key takeaway was the proposed cash transfer programmes that will entail a universal children’s allowance and a social pension for the elderly.

“The government should establish a national social protection floor through universal cash transfer programmes.

“The government should move towards universal benefits to strengthen the currently weak social contract and build higher trust levels among citizens.

“The proposal is to provide a payment of RM100 per child each month for children up to 17 years of age. The same will go for elderly people aged 70 years and above, regardless of socio economic status,” MIER said.

To improve income levels and economic development, MIER advised the government to upgrade the investment ecosystem to attract investments. It noted Malaysia had potential investments amounting to RM643bil that are awaiting to be realised.

“We have to create a one-stop-centre to ensure the seamless operation of investments at the state and federal levels. Another issue that has to be urgently addressed is the shortage of talent and skilled labour,” it said.

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