A Silver Lining: Productive and Inclusive Aging for Malaysia

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Malaysia gets ready to embark on the development path of an aging society Malaysia gets ready to embark on the development path of an aging society

There is cause for celebration in Malaysia. The country is following the path of many others that have climbed up the income ladder and reached greater levels of economic prosperity. Its demographics have also shifted from a situation of high fertility and high mortality to an era of low fertility and low mortality.

As a result, in 2020, Malaysia passes a crucial milestone in its development trajectory and becomes an aging society, defined per the international convention, as having 7 percent or more of the population age 65 and above.

But aging also raises concerns, especially if it happens fast. A recently published report by the World Bank on the aging process in Malaysia explores the details of this transition and discusses options for Malaysia as it faces the challenges of aging. Based on the report, the share of the population age 65 and above in Malaysia is expected to double from 7 to 14 percent by 2044, in just 24 years. Only 12 years later, the share will reach 20 percent. Thus, Malaysia’s aging process is happening at a similar pace to that of Japan.

Rapid aging means that Malaysians will have to work longer. At present, compared to other upper middle- and high-income countries, the employment rate of those age 55 to 64 in Malaysia is very low, especially among women . Whereas in Korea, Japan or Thailand more than 65 percent of persons age 55 to 64 are active in the labor market, in Malaysia this is the case for only 45 percent of those in this age group.

Working longer will allow Malaysians to contribute to the country’s economic growth while improving their own financial protection in old age. In addition, working at older ages provides social interactions, autonomy, and sense of purpose and is therefore often associated with greater life satisfaction and slower cognitive decline.  In fact, workers’ cognitive capabilities tend to change rather than decline as they age. Older workers have the skills that complement, rather than substitute those of younger workers. There is also no evidence either in Malaysia or in other countries that increased employment among older workers harms the employment prospects of younger workers.

As in nearly all high-income countries, longer working lives will in turn require gradual adjustments to the minimum retirement age in line with increasing life expectancy to ensure sustainable provision of retirement pensions.  One option for Malaysia is to gradually increase the relatively low minimum retirement age from 60 to 65, and thereafter to link it to life expectancy.

In parallel, the minimum withdrawal age of the Employees’ Provident Fund (EPF) of 55 years is also relatively low by international and regional standards. For example, the equivalent age in Singapore is 64. Since many EPF members move in and out of formal employment, this means that the majority of older persons in Malaysia have inadequate or no EPF benefits. In 2019, 75 percent of EPF members age 54 had account balances below RM250,000. This translates to a monthly benefit of less than RM1,050. Thus, the burden often falls on families or the limited social welfare programs to protect older persons against poverty and destitution.

The average 55-year-old Malaysian is currently expected to live for another 24.5 years. This means that many workers will spend longer in retirement than as active EPF contributors. Shifting the minimum withdrawal age from 55 to 65 through a well-considered transition process, for instance over a period of 20 years, could almost double the effective financial protection for EPF members who work continuously work and contribute to EPF during their employment career. This is because members will contribute for an additional 10 years while the withdrawal period will be substantially shortened.

In parallel, policies are needed to foster the productive and inclusive employment of all workers, including older workers. If Malaysians are to work longer, they will need to be healthier for longer, with less physically demanding jobs, and with more digitally-enabled work places.  A first policy option is to provide enhanced opportunities for training and lifelong learning that consider the specific circumstances of older workers. In addition, companies could be encouraged and supported to accommodate the needs and abilities of older workers in areas such as work organization, work equipment, and working time policies. Finally, a regulatory framework for the productive and flexible employment of older workers could be developed with further facilitation of part-time and other flexible forms of employment.

In order to prevent exacerbating existing gender imbalances in employment, it will also be important to address women-specific constraints to work. Relevant initiatives include better availability, quality and affordability of childcare, reforms of the legal environment and improved support for parents in line with international legal norms, and policies that address gender norms and attitudes.

While efforts to enable Malaysians to work longer might not always be popular, experience from different European countries shows how an inclusive reform process, the transparent provision of information, and the adoption of concepts from behavioral economics can make such reforms smoother to implement. Some countries, including Estonia and Italy, even aim to increase the minimum retirement age above 70, while others, such as Denmark and the Netherlands, have made provisions to automatically link the retirement age to life expectancy.

Even beyond the need for Malaysians to work longer, aging will be a key megatrend affecting all Malaysians in coming decades. This raises policy challenges in areas such as income security, healthcare, and aged care. Many of these policy challenges have been exacerbated by the COVID-19 pandemic. For instance, COVID-19 infections in several aged care homes in Malaysia show the importance of securing health and safety conditions in these homes.

Ultimately, the right mix of policies, implemented at the right pace, can help Malaysia adapt to rapid aging, improve the well-being of all, and improve the quality of life for older Malaysians. This is the silver lining we all want to see.


Achim Schmillen

Practice Leader for Human Development for Indonesia and Timor-Leste

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