Malaysia is facing a rapidly aging population, with projections indicating that 14% of its citizens will be aged 65 or older by 2045, increasing to 20% by 2056. Despite this demographic shift, the country’s social pension coverage remains low. The current program, Bantuan Warga Emas (BWE), covers only about 4% of elderly Malaysians—one of the lowest rates globally. While approximately 60% of older people receive the Sumbangan Tunai Rahmah (STR), combined benefits from BWE and STR account for less than 10% of pre-transfer income for most elderly households.
A recent study examines whether Malaysia should expand its social pension system by analyzing global experiences and comparing them to the Malaysian context. The study notes that only around 42 percent of Malaysia's working-age population contribute to a formal sector pension scheme, leading to significant gaps in financial support for older adults. Many elderly Malaysians depend on family support, but trends such as shrinking family sizes and changing social norms are weakening these traditional safety nets.
International evidence suggests that social pensions help reduce poverty and inequality while improving well-being among the elderly. Countries like China, India, and those in Latin America have shown that even modest social pensions can lead to better health outcomes and positively affect extended families.
The modeling conducted in the study indicates that expanding Malaysia’s social pension coverage could further reduce inequality and promote inclusive aging. All reform scenarios considered would yield greater reductions in inequality compared to current assistance transfers for older people; these impacts are expected to grow as the proportion of older individuals increases over time. Additionally, expansion would provide a cost-effective way to lower poverty rates among both seniors and the broader population.
Fiscal sustainability remains a key consideration for any proposed expansion. The study recommends several high-priority reforms:
- Significantly expanding social pension coverage, starting with B40 households.
- Considering an increase in eligibility age for social pensions to at least 65 years old in line with rising healthy life expectancy, with future adjustments linked automatically to changes in life expectancy.
- Revising income eligibility thresholds and introducing rule-based indexation of benefits to maintain their real value.
- Improving targeting systems and enhancing interoperability between public sector databases.
The paper concludes: "The paper concludes with recommendations for reforms, emphasizing the need to balance welfare and equity impacts with fiscal considerations."