A silver lining: Productive and inclusive aging for Malaysia

A silver lining: Productive and inclusive aging for Malaysia

by Dr. Firas Raad


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% or more of the population age 65 and above.

But aging also raises concerns, especially if it happens fast. The share of the population age 65 and above in Malaysia is expected to double from 7% to 14% by 2044, in just 24 years. Only 12 years later, the share will reach 20%. 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.

Firas Raad

Whereas in Korea, Japan or Thailand more than 65% of persons age 55 to 64 are active in the labor market, in  Malaysia this is the case for only 45% 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, 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.

One policy option 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 old is also relatively low by international and regional standards.

Along with the fact that many EPF members move in and out of formal employment, this means that the majority of older persons in Malaysia have very inadequate EPF benefits or none at all. Thus, the burden often falls on families or the very 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.

This is due to three effects: members will contribute for an additional 10 years, they will reap an additional 10 years of dividends, and 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 wishes 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 and part-time and other flexible forms of employment could be further facilitated. 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 win over some of the skeptics.

Some countries, including Denmark, Italy, and the Netherlands, even aim to increase the minimum retirement age beyond age 70, while others 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 mega trend affecting all Malaysians in coming decades, raising 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.

Ultimately, the right mix of policies can help Malaysia adapt to rapid aging, improve the well-being of all and increase the share of Malaysians that experience old age not as a burden but as a period of their life full of independence, social inclusion and productivity. That is the silver lining we all want to see. – Dec 2, 2020


Dr. Firas Raad is the country manager (Malaysia) for World Bank Group

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.