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This article first appeared in The Edge Malaysia Weekly on May 25, 2020 - May 31, 2020

THE facts about old age poverty in Malaysia are grim.

A core issue is that a large slice of the elderly is excluded from coverage by pension schemes such as the Employees Provident Fund (EPF) and KWAP, the civil servants’ pension programme.

Currently, a total of 8.79 million workers are covered by these two funds, making up almost 40% of the country’s working-age population of 22.05 million.

But even among those who contribute to the EPF, many become vulnerable in their old age as their savings quickly run out.

In recent years, the EPF has expressed concern that more than two-thirds of its contributors withdraw their savings in a lump sum upon turning 55.

A second group of poor elderly people who are not covered by the two schemes are targeted by a variety of social assistance programmes run by the Social Welfare Department and other authorities.

“Despite the large number of programmes, these arrangements exclude a significant share of those who are targeted,” says social security economist Dr Amjad Rabi, a visiting expert at the University of Malaya’s Social Wellbeing Research Centre.

The centre has been commissioned to provide input for policy reform for the development of a national blueprint for well-being. As the principal investigator, Amjad worked with the centre’s researchers and collaborated with economists and policy experts from EPF, Socso, KWAP, Bank Negara Malaysia, Khazanah Research Institute as well as the government.

The investigators noted that those who were left out of aid schemes tried other solutions.

A common recourse for the elderly is to rely on their children. However, societal changes and demographic shifts are putting the squeeze on family support systems.

The rapidly ageing population is a major factor that demands attention. In 2000, there were 16 persons of working age to support each senior citizen in Malaysia, says Amjad in an email interview.

In 2020, there are only 10 and, by 2050, there will be only be four of them to support one elderly person.

“This is a huge pressure on young people and there are not enough of them to meet this challenge,” he says.

Other senior citizens try to apply for invalidity pensions from Socso, hoping to qualify for assistance to meet their old-age protection needs.

Socso received more than 14,000 applications for invalidity pensions in 2017, but only 40% succeeded in getting their invalidity certified.

Many needy senior citizens also attempt to enrol in government aid programmes. Two schemes in particular are widely known.

The Bantuan Sara Hidup scheme, a cash transfer programme to help the lower-income group cope with the rising cost of living, will make a RM1,000 payment to senior citizens who qualify for assistance this year.

Introduced by the Barisan Nasional government as Bantuan Rakyat 1Malaysia (BR1M), the record shows that 28% of its recipients in 2016 were the elderly. This corresponds to 54% of senior citizens in the country, says Amjad.

The other programme is the Bantuan Orang Tua (BOT) scheme, administered by the Ministry of Women, Family and Community Development.

Within the last decade, both BR1M and BOT have been expanded significantly to meet the huge pressure for old age protection.

The BOT programme increased 4.2 times from 2008 to 2016 and covers 133,352 old age recipients, the ministry’s data for 2017 shows.

Old age citizens are among the biggest groups represented in the bottom 40% of households (B40). A recent KRI study estimated that 60.3% of senior citizens were in the B40 group.

Besides these two programmes, there is a host of other schemes that have been set up in response to a variety of needs, ranging from disaster relief to damage caused by wild animals.

“With all these programmes, one would expect there would be no vulnerability in old age for Malaysians. This is far from the reality,” Amjad observes.

A major problem in the evolution of Malaysia’s system of social protection is its fragmentation across programmes. Currently, there are more than 110 programmes administered by 25 different agencies.

“We need to be aware of this, so that we do not introduce new programmes which add to the fragmentation, but rather have a systems approach where you create synergy between existing programmes and create changes to meet a set of objectives,” Amjad points out.

The shift requires a rethink about public policy design to avoid the double jeopardy of wasteful duplication of programmes and their failure to serve vulnerable groups.

“As Malaysia moves towards high-income nation status, it should move away from the charity model towards a more developmental and inclusive system when addressing the issue of poverty,” Amjad advises.

Experience shows that it is not useful to adopt systems that are successful in other jurisdictions, as countries differ in terms of their societal value structure, existing programmes and fiscal considerations, he cautions.

Three guiding principles are needed to establish the reform agenda:

•    Coverage across all groups (formal, informal, vulnerable and so on);

•    Adequacy of benefit; and

•    Cost containment and friendliness to economic growth.

Two more objectives are critical to achieving full population coverage while ensuring cost containment of the system:

First, the overall system should promote social solidarity, inclusivity and cross-subsidisation from the working to non-working population and the “haves” to the “have-nots”.

Second, the overall system must create synergies and coordination among the different institutional structures to ensure efficiency, impact and coverage.

To actualise these guiding principles, Amjad proposes a two-dimensional framework for consolidating and coordinating Malaysia’s fragmented social old-age protection arrangements and closing the coverage gap (see chart).

A key element of the proposal is the establishment of a solidarity fund to guarantee a minimum pension that will cover the entire elderly population.

“By better coordinating, and giving emphasis to creating synergies between contributory and non-contributory programmes, the overall integrated system will be more effective to not only reduce inequality, but also enhance economic security for the entire old age population while maintaining an incentive structure for saving and participation in the labour market within Malaysia’s overall fiscal envelope,” says Amjad.

To achieve this transformation, he proposes a package of reforms of both negative measures and positive ones to make the changes sellable.

The negative steps are:

•    Raise the age of withdrawal from EPF to 60 years; and

•    EPF members can only withdraw any amount in excess of RM45,000. The retained amount will be provided in instalments of RM400 a month for the next 10 years.

The positive measure is:

If the above steps are followed, the member will receive a social pension of RM400 from age 70 till death. Moreover, this can be provided to all persons aged 70 and above.

The annual cost for the social pension component is RM5.5 billion a year, which is 0.34% of GDP. The cost will remain affordable over the projection period, that is, 0.37% of GDP in 2035, says Amjad.

The financing of the solidarity fund would come from three streams of income.

The first is a fiscal-neutral reallocation of existing resources. Treasury allocation to the many current programmes offering social assistance to the elderly can be channelled to the solidarity fund. Amjad estimates that RM1 billion to RM2.3 billion a year can be redirected to the proposed solidarity fund.

Second, 2% of existing contributions to EPF and KWAP would be dedicated to the solidarity fund. As it is proposed that all EPF members and civil servants would benefit from the Social Old Age Protection Floor, a contribution of 2% will bring RM0.5 billion to RM0.75 billion.

The balance can be funded through increased budgetary outlays, Amjad proposes.

Finally, based on a systems approach to the reform, the administration of social protection schemes needs to be streamlined for cost-saving and improved efficiency.

To this end, a shared service centre (SSC) should be established as a “one-stop shop” to serve the needs of all social protection providers as the frontline service delivery to the public.

With the newly established SSC, unification of databases becomes a natural parallel step. In this effort, the use of MyKad as the base of unification across all programmes is a key recommendation of the social protection plan.


Rash Behari Bhattacharjee is an associate editor at The Edge


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