Malaysia faces ageing workforce and dwindling retirement funds

MALAYSIA: The country’s ageing population and the shortfall in retirement funds are becoming a serious concern with social and political implications, according to the recently-launched Securities Commission Capital Market Masterplan 3, a five-year plan to support Malaysia’s next stage of growth.

Malaysia will become an aged nation based on the findings of the Institute for Capital Market Research. Chairman Tan Sri Dr Munir Majid compared Malaysia with France, Sweden, and the United Kingdom, which will be classified as aged nations in 115, 85 and 45 years, respectively. Majid explained that those countries had enough time to develop and prepare by increasing per capita efficiency and gradually raising the retirement age.

The report traced the root cause to low retirement coverage, as well as challenges in inadequacy brought about by low wages and sustainability worsened by the COVID-19 pandemic. The withdrawals from the Employees Provident Fund (EPF) provided short-term immediate relief, but with long unfavourable effects. Majid added that 6.3 million people have less than RM10,000 (USD 2,400) in their EPF account as of June 2021.

Majid further emphasized that the current retirement system is obsolete, based on traditional ideas of long-term employment with a single-income stream, and with employers providing social security benefits. He said that changes are necessary to adjust to the changes in the economic and social landscape.

He added that including the healthcare system would be helpful for holistic and immediate action. Health costs will drain the already inadequate retirement earnings as life expectancy lengthens.

Meanwhile, Asia Global Institute distinguished fellow, Tan Sri Andrew Sheng, concurred with

Majid and opined that in an ageing society, retirement funding is insufficient because of a longer life expectancy. He also noted that the contribution for retirement fund options, such as private pension funds, are not affordable for low-income earners.

The government’s social welfare also may be financially burdened, which could affect the quality of support and care, if Malaysia will not act quickly. Financial Planning Association of Malaysia chief executive officer Linnet Lee cited a Universiti Sains Islam Malaysia’s study that showed that a 10% rise among the senior citizen population lowers labour force participation and productivity with gross domestic product per capita rate to dwindling by 5.7%.

Lee recommended that employees save in EPF or Private Retirement Schemes, a voluntary long-term savings and investment retirement plan. For a low-cost insight, Lee suggested Robo advisors, which are digital platforms with automated, algorithm-backed financial scheming services.

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