Malaysia Must Address Ailing Security of its Ageing Society

The Madani government’s resolve to enhance the targeting of subsidies and assistance cannot ignore the dire economic insecurity of senior citizens. Malaysia is already considered an ageing society and this will continue at the current trajectory. The proportion of the population aged 65 and older, currently at 8 per cent, is projected to rise to 14 per cent by 2043.

One sign of trouble is the slowdown in income growth among senior citizens. Households headed by persons aged 65 and above have received considerably lower income than other age groups. They have also experienced slower income growth in recent years (Figure 1).

Older, Lower and Slower

Figure 1. Income of Senior Households is Lower and Growing Slower than the Rest

Malaysia also faces a retirement crisis. The Employees Provident Fund (EPF) has been sounding the alarm post-Covid-19. Private sector Malaysian employees allocate a portion of their salary into their EPF accounts — with matching contributions from employers — to accumulate savings for retirement. The EPF counts 8.5 million active (regularly contributing) members, representing half of the workforce, and 7.2 million inactive members. Most of the self-employed or informally employed either do not participate in the EPF or maintain meagre EPF accounts.

Swathes of EPF savings were depleted by mass withdrawals that the government permitted during the pandemic in 2020-21. By October 2021, the EPF warned that only three per cent of its members could afford to retire. Referencing a rule-of-thumb savings minimum of RM240,000, a study last September found that 90 per cent of EPF members under 30 will not be able to meet that target.

The case for a publicly funded basic pension is gaining currency. This intervention enjoys strong moral justification as a public provision by virtue of seniority, and the power of simplicity as a grant for all citizens.

The EPF introduced the Retirement Income Adequacy Framework in December 2024 to guide members’ savings accumulation. Other measures to fortify future retirement include promoting voluntary contributions, especially by the self-employed.

The crisis, however, remains clear and present. EPF retirement savings can be withdrawn from the age of 55. In December 2023, EPF’s 54-year-old members comprised active members (39.5 per cent) and inactive members (60.5 per cent). Active members’ median savings of RM154,400 staggeringly exceeded inactive members’ minuscule RM9,800. Retirees with neither EPF savings nor government pension face graver uncertainty and would probably rely on their children, who may already be financially stressed.

The case for a publicly funded basic pension is gaining currency. This intervention enjoys strong moral justification as a public provision by virtue of seniority, and the power of simplicity as a grant for all citizens. Paying pensions to everyone averts the cost and complication of screening beneficiaries and the peril of excluding some who would qualify under a voluntary system. Various countries implement versions of this, notably Thailand’s pension system, which includes the Old-Age Allowance (OAA). The adequacy of OAA’s quantum is debated, but its near-universal coverage makes it a useful reference.

In introducing a basic pension, Malaysia will be mainly expanding and modifying its vast existing social assistance system. The Madani government’s Sumbangan Tunai Rahmah (STR, or Compassionate Cash Contribution) for low- to middle-income households or individuals has 8.5 million registrants. The Sumbangan Asas Rahmah (SARA, or Compassionate Basic Contribution), which applies a lower income qualifying threshold, has 5.4 million. Both schemes were rebranded and reconfigured from their predecessors, which started in 2011 and have enjoyed renewed multipartisan support through changes of government. For 2025, the sum of STR and SARA grants for the above-60 population was raised to RM1,800 annually, with the below-poverty-line population receiving an additional RM600, or RM2,400 in total.

One political quandary to a standardised pension, paid to poor and rich alike, is its incongruence with the government’s pro-poor stance. Current STR and SARA recipients may not take kindly to middle- and high-income households receiving the same amount of cash assistance. A simple modification could keep the RM2,400 currently paid to poor households as a baseline for all 3.8 million above-60 citizens, adding RM1,200 for STR and SARA registrants and a further RM600 for those under the poverty line (Table 1). This scenario would cost roughly RM10-11 billion. The additional budget required, on top of the RM13 billion allocated for STR and SARA for 2025, would be around RM8 billion.

Leg-Up

Table 1. Cash Assistance for Above-60 Population (RM per year)

	All Recipients	STR + SARA Recipients	STR + SARA Recipients Below Poverty Line
Current regime	0	1,800	2,400
Basic pension scenario	2,400	2400 + 1,200 = 3,600	2,400 + 1,200 + 600 = 4,200

Are such measures politically and financially viable? In August 2024, the Anwar administration foreclosed the prospect of a basic pension due to the high cost. The prime minister’s “people appreciation” package was just announced on 23 July, which included RM100 to all above-18 citizens for purchasing basic goods at selected supermarkets. This one-off cash gift amounting to RM2 billion is a gesture enjoying public support.

One-off handouts should give way to more institutionalised and targeted support – and could also help build a legacy. If RM2 billion can be mustered in conjunction with Malaysia Day 2025, why not RM8 billion for all Malaysians born before 1965 (perhaps excluding civil service pensioners)? The recently rolled out sales and services tax expansion is projected to net RM5 billion for the second half of 2025, which amounts to RM10 billion for one year.

The government could introduce an opt-out mechanism for those who wish to forego all or part of the basic pension, and perhaps a designated fund to repurpose such proceeds. Such possibilities have been raised in reaction to the RM100 giveaway.

Of course, a Malaysian basic pension must be explored alongside expansion of government revenue, and the pension expenditure balanced with other social protection needs, most notably childcare and public health. The debates on broadening consumption taxes, and increasing income tax on the highest brackets, must continue. We would want and expect monthly pension income to be predominantly recycled back into the economy, but this is not guaranteed. An e-wallet mechanism, which could help induce spending, is among the operational issues to be considered.

The acute retirement crisis, though, calls for a principal commitment to a basic pension. Malaysians deserve income security in their sunset years.

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