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Asher, M.G. and Bali, A.S. (2012) Malaysia. In: Park, D., (ed.) Pension Systems in East and Southeast Asia: Promoting Fairness and Sustainability. Asian Development Bank, Manila, pp. 53-65.

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Abstract

The current pension system comprises several schemes with different designs targeted at specific groups. Private sector workers have a defined-contribution, mandatory savings plan administered by the Employees’ Provident Fund (EPF) that covers about half the labor force but is inadequate and inequitable. Median balances of less than 2 years of per capita income in 2009 will not finance retirement when life expectancy at age 60 in 2005 was 17 years for men and 20 years for women. In addition, there are no provisions for longevity and inflation risks or for survivors’ benefits all of which challenge sustainability. In contrast, civil servants have a defined-benefit, non-contributory plan that pays benefits for life and adjusts them periodically, and military personnel have a mandatory defined-contribution savings plan with the government as co-contributor; both include survivors’ benefits and together cover about 13% of the labor force. The disparities in benefits among the schemes and the uneven taxing of retirement financing programs are unfair. In addition, social assistance is very restricted and benefits are below the poverty line, and foreign workers (currently 20% of the labor force) are excluded from the EPF and have limited access to public services. To improve fairness and sustainability of the pension system, policy makers should address longevity, inflation, and survivors' benefits in the EPF; minimize the differences between the civil servant scheme and the EPF; establish a more liberal social pension with better benefits; and tax providers of pension products fairly. Malaysia needs an integrated pension system that takes trends in longevity into account as the population aged 65 and older is expected to triple from 4.8% in 2010 to 15% by 2050.

Publication Type: Book Chapter
Publisher: Asian Development Bank
URI: http://researchrepository.murdoch.edu.au/id/eprint/38674
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