This article first appeared in Forum, The Edge Malaysia Weekly on August 3, 2026 - August 9, 2026
Every year, we debate whether Employees Provident Fund (EPF) balances are adequate, how much individuals should save and whether Malaysians are financially disciplined enough to prepare for old age. But what if we are asking the wrong question?
For many Malaysians, retirement adequacy begins long before retirement; it starts with wages.
Today, the data presents a clear opportunity for collective action. As of October 2024, based on the EPF’s Retirement Income Adequacy Framework, 39.5% of active members in 2025 met the basic savings benchmark of RM390,000, which is well below the RM650,000 threshold that is considered adequate for retirement. At the same time, inequalities in savings are widening. Between 2019 and 2025, median EPF balances were essentially flat (+2.6%), even as average balances surged by 35%. This divergence suggests that while some are accumulating wealth, many are falling behind. These figures also suggest that retirement adequacy is not merely a savings issue. It is increasingly an income issue.
Why does this matter?
An internal modelling exercise, assuming a 35-year career, 5% annual income growth, statutory EPF contribution rates and average long-term investment returns of 5.5%, shows that a worker starting at RM1,700 could accumulate about RM750,000 in retirement savings. A worker starting at the median wage of RM3,167 could accumulate closer to RM1.4 million. Most strikingly, every additional RM100 in starting salary may generate an additional RM50,000 to RM70,000 in retirement savings over a lifetime. Small differences in income today compound into vastly different financial futures tomorrow.
A major driver is the wage gap. Malaysia’s median monthly wage stood at RM3,167 in 2025, with many still earning below RM2,000. While the minimum wage has been raised to RM1,700, it remains below the estimated urban living wage; around RM2,700, for a single adult in Kuala Lumpur. Between 2022 and 2025, even as productivity rose by 7.4%, real wages declined by around 1.9%. This disconnect highlights a key structural challenge: productivity gains are not flowing through to workers. Over time, wage growth has consistently lagged economic expansion. Today, only about one-third of Malaysia’s gross domestic product (GDP), around 33%, is distributed as wages, compared with closer to 50% to 60% in more advanced economies.
In other words, the economy is growing but not all workers are experiencing that growth.
This imbalance is reinforced by labour market structures. Micro, small and medium enterprises (MSMEs) account for nearly 40% of GDP and almost half of employment, operating with tighter margins, which limit their ability to raise wages. At the same time, unionisation remains low at around 8.7% of the workforce, with collective bargaining coverage as low as 0.4%. This weakens workers’ bargaining power to negotiate wages and leaves wage-setting largely dependent on policy and firm-level decisions.
The result is a “squeezed middle”: minimum wage policies have helped lower-income workers but many middle-income earners continue to experience slow wage progression. Job creation has also not kept pace with demand for high-paying high-productivity roles while skills mismatches continue to constrain income growth.
To its credit, Malaysia is not starting from a blank slate. It has already started addressing this issue via its initiatives such as the Progressive Wage Policy, minimum wage adjustments, the New Industrial Master Plan (NIMP), and the expansion of technical and vocational education and training (TVET), all seeking to strengthen the link between wages, productivity and skills. Government-linked investment companies such as Kumpulan Wang Persaraan (Diperbadankan) (KWAP), Permodalan Nasional Bhd, EPF and Khazanah Nasional Bhd have also taken a leading role in adopting the Living Wage benchmark of RM3,100 while their subsidiaries increasingly serve as anchors for quality employment. Complementing these efforts are initiatives such as Bursa Malaysia’s Value-Up Programme, which seeks to enhance corporate competitiveness and productivity. The recent launch of Bakat Madani further signals a growing national commitment to strengthening the talent pipeline by connecting skills development, TVET, quality jobs and upward social mobility. Together with programmes such as TalentCorp’s talent initiatives and Malaysia Digital Economy Corporation’s digitalisation efforts, these measures reflect a broader recognition that sustainable wage growth begins with stronger worker capabilities and better employment opportunities.
International experiences offer useful lessons on how wage systems can be strengthened.
Singapore demonstrates how wage progression can be structured. Through its Progressive Wage Model, wages are closely linked to skills, job roles and experience. In sectors such as cleaning and security, workers move along defined pathways, where advancement requires training and certification, and each step brings a higher wage. This creates a predictable trajectory for income growth.
The UK offers a different approach focused on wage adequacy. Its National Living Wage is set as a proportion of median earnings, with a target of around two-thirds, and is reviewed annually by the independent Low Pay Commission. This provides a structured mechanism to raise wages over time, although outcomes remain uneven without strong coordination or progression systems, with many workers experiencing limited income mobility beyond the wage floor.
Japan highlights the importance of coordination. Through its annual Shunto wage negotiations, major firms and unions set wage expectations that influence the broader economy. Even firms not directly involved tend to follow these signals, making Shunto an effective macro-level wage signalling mechanism for aligning wage growth across sectors.
Together, these examples highlight three key elements: progression, adequacy and coordination. For Malaysia, the challenge is not to replicate any single model but to adapt these principles within a labour market that is MSME-driven, diverse and partially informal.
First, while the Progressive Wage Policy has laid an important foundation and created early momentum in wage progression in Malaysia, it can be strengthened by turning it into a more structured, sector-based system. Instead of remaining as broad guidance, it can be translated into clear wage pathways for each sector, developed together with industry players. These pathways would outline starting wages, define how workers can progress based on skills and experience and set the expected pay increases at each stage.
In sectors such as retail, construction and care services, this would give workers a clearer route to move from entry-level roles to supervisory and managerial positions, supported by modular training through TVET. Importantly, these pathways should be recognised across firms within the same sector, so workers do not lose progress when they change jobs. This would make income growth more predictable and systematic, rather than dependent on individual employers.
Second, any meaningful wage reform must include MSMEs, which employ nearly half of Malaysia’s workforce. However, raising wages without addressing business constraints may not be sustainable. A more practical approach is to link wage increases to productivity improvements.
This means supporting MSMEs in adopting technology, improving processes and redesigning jobs while also committing to better wages and skills development. Support systems such as shared training platforms and sector-level collaboration can help smaller firms access capabilities they would not be able to build alone. In this way, wages rise alongside improvements in firm performance, making the changes more sustainable over time.
Third, inspired by Japan’s Shunto system, Malaysia could improve wage outcomes through better coordination at the national level. Today, wage-setting is largely decentralised and driven by firms, with limited alignment to economic conditions. A national wage guidance framework could help address this.
Through coordinated engagement between government, employer and worker representatives, indicative wage growth benchmarks could be set based on productivity, inflation and economic conditions. While not mandatory, these signals can guide firms and help ensure that productivity gains are more consistently shared with workers.
Finally, wage reform cannot be divorced from Malaysia’s broader economic transformation agenda. Sustainable wage growth ultimately depends on whether the economy is creating enough high-quality, high-productivity jobs. This means moving beyond a race for low-cost labour and focusing on sectors that generate greater value, such as semiconductors, advanced manufacturing, digital services and financial services. Investment incentives should not only attract capital but also encourage firms to create better-paying jobs, invest in innovation and develop local talent. At the same time, living wage benchmarks should become a stronger reference point for employers and policymakers as they assess what constitutes adequate income in a modern economy. Ultimately, wages should be viewed not merely as an outcome of growth but as a measure of whether economic progress is improving the lives of ordinary Malaysians.
Ultimately, the national conversation needs to evolve.
Retirement adequacy cannot be solved solely through financial literacy programmes, higher contribution rates or stronger investment returns. Those interventions matter but they are downstream solutions to an upstream problem. A retirement system can only distribute what workers are able to accumulate during their careers. If wages remain weak, no retirement system can fully compensate for a lifetime of inadequate earnings.
Instead of asking whether Malaysians are saving enough, perhaps we should first ask whether Malaysians are earning enough. Retirement security is not built at the point of retirement. It is built, or lost, through a lifetime of earnings. And that journey begins with wages.
Wan Najwa Wan Sulaiman is a senior strategist with a government-linked investment company
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