KUALA LUMPUR, Oct 30 — Malaysia could face an elderly care crisis unless it boosts funding to widen social pension coverage, with its population aged 65 and over projected to reach a fifth by 2056, the World Bank warned today.

Malaysia currently has one of the lowest social pension coverage in the world, the Bank noted in a paper on the topic released this morning, with coverage of social pensions as a percentage of the population aged 65 and above is just under 10 per cent, far lower than its regional peers. 

Thailand’s social pension programme, for example, has nearly 90 per cent coverage, while the Philippines and Vietnam each have nearly 30 per cent coverage, the Bank noted in a paper titled “Should Malaysia expand its social pension? Global evidence, design issues and options” released this morning.

“Malaysia’s population is aging rapidly, but its social pension coverage and adequacy are relatively low,” the paper’s authors said.

“By 2045, 14 per cent of Malaysia’s population will be 65 or older, rising to 20 per cent by 2056. However, Malaysia’s social pension (Bantuan Warga Emas, BWE) currently covers only around 4 per cent of the elderly — among the lowest rates globally,” they added.

Social pensions are transfers to the elderly that are financed by general government revenues — meaning they do not require a contribution from the recipient and are typically offered to eligible citizens, often defined by age or income.

BWE cannot fill in EPF gap

In Malaysia, up to 60 per cent of older people also receive the Sumbangan Tunai Rahmah (STR), a cash transfer programme for low-income households.

Still, the combined benefit from BWE and STR accounts for less than 10 per cent of pre-transfer income for most older households, the paper’s authors said. 

This financial gap is exacerbated by the fact that only 42 per cent of the working-age population contributes to a formal sector pension, they added.

Malaysia grounds the BWE eligibility threshold and benefit level in the Poverty Line Income or the PLI, defined as households earning below RM2,589 monthly, a sum arrived at based on prices of food items alongside non-food items derived from the consumption patterns of bottom 20 per cent households.

The paper said BWE’s mere 4 per cent coverage places Malaysia in the very-low coverage bracket globally. 

“This is partly a reflection of the modesty of social assistance spending overall in Malaysia, which — excluding consumer fuel subsidies — remains low by upper-middle-income country (UMIC) standards,” the authors said. 

“Given the very partial effective coverage of the contributory Employees Provident Fund among the working age population, current BWE coverage is clearly insufficient to bridge the EPF coverage gap.”

Social pensions can reduce old age poverty

While EPF contributions have improved in volume and scope, overall retirement savings adequacy remains a critical problem. 

In 2023, the fund warned nearly 50 per cent of contributors reaching age 55 had less than RM10,000 in their savings, far below the modestly estimated RM250,000 needed to retire.

All this points to a strong case for significant expansion of a social pension for older people in Malaysia, the World Bank said as it calls for Putrajaya to expand social pension coverage, either through existing programmes or new ones.

Global evidence shows social pensions are correlated with reducing poverty and inequality, and increased well-being, the paper’s authors said, citing international experience — including in China, India, and Latin America — that showed even modest social pensions can reduce poverty, improve health and well-being.

These improvements also have a positive spillover effect to extended family members. 

“This is likely to have positive welfare impacts not only for older beneficiaries but also for their extended household members. Whether this is done through a coverage expansion of BWE, through an explicit elderly “window” within STR, or potentially through a new and additional benefit, is an open question on which this paper does not take a view,” the paper said.

Give social pensions to all B40 elderly

Widening coverage should be a short-term priority reform, the Bank argued, recommending Putrajaya start by extending BWE even to older people from the bottom 40 per cent households, which it said would have “the highest potential poverty reduction impact”.

To make the coverage expansion possible, the paper said income eligibility threshold for social pension receipt would need to be adjusted, arguing that pegging it to the PLI is unrealistic given Malaysia’s income level. 

It suggested using the Basic Expenditure of Decent Living as the best threshold to determine eligibility.

Eligibility age for social pensions should also be raised to 65 years old and linking its future level automatically to increases in life expectancy. 

A higher access age would also allow for higher average benefits for those who did receive the social pension and/or more manageable fiscal costs. 

 Malay Mail – Malaysia