MALAYSIA is approaching a defining demographic transition. By 2048, the proportion of Malaysians aged 65 and above is expected to double from 7% in 2021 to approximately 14%, placing the country firmly on track to become an aged nation.
As Malaysians live longer and retirement needs evolve, strengthening retirement security will become an increasingly important national priority.
Meeting this challenge requires careful consideration of several realities, including rising life expectancy, slower population growth, changing employment patterns and mounting fiscal pressures.
Many countries have spent decades navigating similar trends and adapting their retirement systems accordingly.
While their experiences offer valuable lessons, one message stands out: there is no universal blueprint. Each country must chart its own path, shaped by its unique circumstances and priorities.
Building blocks of a pension system
Every pension system rests on three fundamental principles:
> Coverage – who is protected.
> Adequacy – how well they are protected.
> Sustainability – whether the system can keep delivering protection as demographics and economies shift.
For Malaysia, striking the right balance across all three will determine whether our reform succeeds.
Retirement landscape through a global lens
Across the 38 Organisation for Economic Co-operation and Development (OECD) countries, a typical worker can expect a pension worth about 63% of their net salary, yet the gaps are stark.
Some countries replace less than 40% of pre-retirement income, while others exceed 95%. The gap is largely shaped by how each pension system is designed, funded and supported by the labour market.
The Netherlands offers a useful example of how broad occupational pension coverage can sit alongside strong retirement adequacy. A full-career average earner in the Netherlands is projected to receive a net pension replacement rate of 96%, meaning pension income nearly matches pre-retirement net earnings.
This is underpinned by a quasi-mandatory occupational pension system with very high participation, at 97% of the working-age population.
Rather than relying on national automatic enrolment, the Dutch model is built around industry-wide and collective bargaining arrangements. The system is also evolving, with Dutch DB plans required to transition into DC plans by 2028.
New Zealand takes a different but equally deliberate path. NZ Superannuation provides a universal flat-rate income to all long-term residents aged 65 and over, regardless of employment history.
In a labour market where self-employment accounts for around 18.5% of the workforce, this universality acts as a powerful equaliser against old-age poverty.
KiwiSaver, a voluntary Defined Contribution (DC) scheme, then adds another layer of retirement security.
The United Kingdom, meanwhile, takes a more targeted approach, addressing career breaks – disproportionately taken by women through National Insurance credits.
These approaches balance fairness with personal responsibility and raise a provocative question: what if Malaysians had a basic retirement foundation, regardless of work history?
Coverage and adequacy alone are insufficient – without sustainability, even strong systems eventually falter.
Iceland demonstrates balance through its three-pillar model: a means-tested public pension, mandatory occupational funds and voluntary employer-matched savings.
Despite a modest 15.5% contribution rate, the system targets a 72% replacement rate while placing primary responsibility on occupational funds rather than the state and is further anchored by a retirement age of 67, the highest in the OECD.
These examples highlight that retirement systems work better when coverage is broad, benefits are meaningful and long-term sustainability is built into the design from the beginning.
Why architecture matters: A simple illustration
Consider a young professional, Sarah, entering the workforce.
In the Netherlands, she would be enrolled in an industry-wide DB plan, likely retiring with an income that almost fully replaces her salary.
In New Zealand, she would receive a universal basic pension topped up by voluntary savings – providing continuity even after career breaks.
In Iceland, her pension would primarily come from occupational funds, but if that falls short, a targeted public pension will provide additional support.
In Malaysia, retirement sustainability has been built around occupation-linked contributions and has served many Malaysians well. As work patterns and retirement expectations shift, there is an opportunity to strengthen the broader pension ecosystem to better support individuals across different stages of life.
From principles to practice
Achieving this requires solutions aligned with Malaysia’s economic structure, workforce realities and demographic trends. The OECD has highlighted the importance of strengthening retirement systems in response to these shifts.
Malaysia has made encouraging progress in this regard, with its 2025 Mercer Global Pension Index score improving to 60.6 from 56.3 previously, while highlighting scope to further strengthen coverage, adequacy and sustainability.
Therefore, the data shows coverage remains a challenge. As the workforce grows, so does the coverage gap, leaving future retirees at risk of depending on family support, irregular income, or inadequate public assistance amid rising healthcare and living costs.
The deeper question is not just how many people are covered, but what it would take to reach the remaining 58% without formal, regular retirement savings.
The Employees Provident Fund (EPF) has made commendable progress in widening retirement protection across Malaysia through i-Saraan and i-Saraan Plus for gig and self-employed workers, i-Suri and i-Sayang for non-working spouses and mandatory contributions for foreign workers from October 2025.
These initiatives mark a significant step toward closing longstanding gaps and strengthening the nation’s overall financial resilience.
Building on this foundation, what’s next must involve a wider ecosystem of participation involving employers, civil society, financial institutions, and community-based partners.
Portable accounts, participation incentives, financial literacy and alternative income pathways for vulnerable seniors all have a role to play in further increasing coverage.
However, coverage alone means little if payouts fail to meet basic living costs. Adequacy must reflect longer lifespans, healthcare needs and rising expenses, and it begins well before retirement.
The government has taken meaningful steps to raise the income floor.
The minimum wage has been raised by 13% to RM1,700 per month as of February 2025, benefiting an estimated 4.4 million workers.
Alongside this, the Progressive Wage Policy introduces wage floors tied to skills and productivity. These are meaningful steps in the right direction.
Yet the deeper constraint remains wage level itself. When income is low, contributions are low – and no amount of system design compensates for a savings base that was never sufficient.
Singapore’s Central Provident Fund (CPF) model offers a relevant reference: integrating mandatory savings with flexibility across housing and healthcare, while CPF LIFE ensures lifelong payouts.
Malaysia can draw from the idea that retirement security is not built through savings alone. It depends on a broader ecosystem that supports financial well-being throughout life.
Better outcomes in essence begin long before retirement itself. Employability, skills and sustainable income opportunities help lay the foundation for long-term financial well-being.
This perspective aligns with KWAP’s nation-building agenda under GEAR-uP. While capital deployment remains central to creating long-term value, investing in talent is equally important in supporting better retirement outcomes.
Through its support for initiatives such as Bakat Madani, KWAP contributes to strengthening employability, skills and income prospects, which are important enablers of long-term retirement security.
KWAP has also collaborated with fellow Financial Education Network (FEN) members to promote financial literacy and scam awareness, helping pensioners make informed financial decisions and strengthen their retirement readiness.
These initiatives underscore the importance of a whole-of-ecosystem approach. Greater coordination across health, housing, education, employment, financial capability and social support can help build a more integrated and responsive retirement ecosystem.
Ultimately, a sustainable retirement system must evolve with the people it serves.
As retirement needs change, so too must the policies that govern retirement.
Malaysia’s retirement age currently stands at 60. Countries like Denmark have linked retirement age to life expectancy, ensuring automatic alignment with demographic trends.
Malaysia need not move overnight – but graduated pathways, such as phased retirement and expanded part-time work options, would allow older workers to remain economically active without sacrificing income or dignity, while easing pressure on public finances.
Malaysia’s path forward
Malaysia’s pension system was built for a different era, and it has served millions well. The task now is to extend its reach to the millions it has yet to serve.
While there is no universal blueprint, the global evidence is consistent; countries that navigated this transition successfully took a long-term view, fostered broad stakeholder support, sequenced reforms carefully and built systems capable of evolving.
Malaysia has the institutions, data and increasing awareness to build on these foundations.
Retirement security is shaped by a range of interconnected factors, and strengthening retirement security calls for a holistic approach that supports individuals across different stages of life.
Constructive discourse and collective engagement remain important in building shared understanding of the opportunities and trade offs in strengthening the pension ecosystem.
This can help ensure that future enhancements are both practical and well supported.
By building on existing strengths and adopting practical solutions, Malaysia is well placed to further strengthen its pension ecosystem.
By Kumpulan Wang Persaraan (Diperbadankan) [KWAP] chief strategy and services officer Nazaiful Affendi Zainal Abidin and director of corporate strategy Mohd Faizal Mohd Yusof.
Disclaimer: KWAP shall not be responsible or liable for any error, omission, inaccuracy of the information, or for any reliance or usage of all or any part of this article whatsoever.
The opinion stated, and all information contained herein, is not professional advice and is provided on an “as is basis”.
