At the moment, around 42% of the working age population contribute to a formal sector pension scheme, resulting in a major coverage gap in older age financial support. — Reuters
KUALA LUMPUR: For better social pension schemes to materialise, there must be trade-offs taking place within the fiscal space, says the World Bank.
World Bank Group senior economist Matthew Dornan pointed out that Malaysia’s elderly social pension, Bantuan Warga Emas (BWE), which was introduced in 1982 with an eligibility age set at 60, is very tightly targeted with only 4% of the country’s elderly generation tapping into it.
This has become a worrying factor for many because by 2045, 14% of Malaysia’s population will be 65 or older, and it is set to rise to 20% by 2056.
Dornan said in light of this, there is a strong case for expansions and considerations.
“Trade-offs are important in this instance, there are things that need to change. For example, raising the eligibility age is one way to address the challenge.
“The rationale for this is to reduce the cost to the government,” he told reporters on the sidelines of the World Bank’s latest study launch, “Should Malaysia Expand its Social Pension? Global Evidence, Design Issues and Options” here yesterday.
According to Dornan, there are also rationales in tandem with raising the eligibility age that state if one is at the age of 60, they can continue supporting themselves, and may not need to withdraw from the labour market.
At the moment, around 42% of the working age population contribute to a formal sector pension scheme, resulting in a major coverage gap in older age financial support.
Dornan added there were a number of conversations taking place about the retirement age in Malaysia as well.
“I’m of the view that it should increase over time, although I do think it probably would be best to do that incrementally,” he said.
Comparing Malaysia’s current situation with the rest of the region, Dornan acknowledged that social welfare in East Asia is quite limited in its scope.
He explained the region tends to have a higher reliance on family networks for support, and not necessarily on the government.
“However, the spending on BWE is quite small, about 0.05% of the country’s gross domestic product (GDP). It is much smaller than countries like Thailand or Vietnam,” he said.
Meanwhile, the report provided insight into how fiscal responsibility will be key, backed by targeted designs and revenue reforms.
“We’ve modelled the cost of expansion of a social pension. Much depends on the design, but there are ways to incrementally expand coverage of the social pension without too significant of an impact on the government budget.
“In our view, this is feasible.
“But, of course, the design of that expansion needs to be considered carefully given the limited fiscal space that is available,” he said.
He added Malaysia had the lowest tax-to-GDP ratio in Asean, so it is an important longer-term priority to increase that revenue base to afford improved public services, public goods and support for people through social protection programmes like a social pension.
The report also discussed social pensions are correlated with reducing poverty and inequality, and increased well-being.
“International experience – including in China, India and Latin America – demonstrates that even modest social pensions reduce poverty, improve health and well-being, and these improvements have a positive spillover effect to extended family members.”
