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publication November 24, 2020

A Silver Lining: Productive and Inclusive Aging for Malaysia


Rapid aging will be a crucial megatrend affecting Malaysia in the coming decades. Going from an aging to aged society in just 24 years, the country’s transition happens at a similar pace to Japan’s and follows the trend of other high-income economies.

  • In 2020, more than 7 percent of the population will be age 65 and above, meeting the conventional international definition of an “aging society”
  • By 2044, 14 percent of the population is expected to be above 65 years of age making Malaysia an “aged society”
  • Come 2056, Malaysia will be a “super-aged society”, with over 20 percent of its population above the age of 65

The aging megatrend brings with it new challenges for Malaysia in areas such as employment, income security and aged care.

  • Slower population growth and the shrinking relative size of the working-age population will account for a third of the decline in headline GDP growth by 2050
  • Poverty incidence and vulnerability of older persons increases with age
  • Increasing old age dependency ratio could increase the vulnerability of older persons as families struggle to cope with care needs
  • Prevalence of disabilities accumulate over longer life spans increasing care needs
  • While an aging population has its challenges, it is not without opportunities. Serving the needs and demands of older persons can open a new “silver economy” as:
  • The productive potential of persons above age 50 can mitigate the economic growth effects of aging and talent shortages
  • Aged care could become a new economic driver
  • As seen in high income countries, older persons have the potential of being relatively well-off consumers compared to the younger generations

Recognizing the breadth and complexity of this issue, the report focuses on three key policy areas with existing knowledge gaps – employment, income security and aged care.

Ensuring flexible, productive and inclusive employment

  • Only 45.2 percent of persons age 55 to 64 are employed in Malaysia. This is lower than in high-income economies. The employment rate of those age 55 to 64 is particularly low for women.
  • This is partially driven by the low minimum retirement age and low EPF minimum withdrawal age.
  • There is room for improvements in employment prospects of older workers, with no evidence to suggest a negative impact on the job prospects of younger workers
  • Older workers are more likely to be self-employed or engaged in part-time work. 43.1 percent of employed men and half of employed women between age 60 to 64 are self-employed.

Expanding adequate social protection coverage for older persons

  • Old-age income security is dependent on individual retirement savings or familial support, in the absence of broad-based social assistance programs.
  • Only 60.8 percent of the Malaysian labor force contributes to the Employees Provident Fund (EPF), which is low when compared to an aspirational group of high-income countries. Almost 75 percent of EPF members have account balances below RM250,000 at age 54. Simulations show that this would translate to a monthly income of less than RM1,050.

Growing importance of aged care

  • Three-generation households are declining from 41.1 percent in 2004 to 30.7 percent in 2016. This potentially weakens the traditional role of familial provision for aged care.
  • The number of persons with functional limitations in activities of daily living is projected to double between 2020 and 2040 and there is also a high prevalence of non-communicable diseases (NCDs)
  • Publicly-financed aged care is still very limited while private care does not provide wide coverage either

Employment and income security a particular challenge for women

  • The employment gap between men and women is largest between age 50 and 60. Only 17.9 percent of women in this demographic are employed compared to 59.7 percent of men.
  • Women make up a larger portion of those self-employed or as unpaid family workers, resulting in less social insurance coverage. At age 54, the average women has an EPF balance of RM177,00 compared to RM233,000 for men.

Policy options

Fostering productive employment of all workers, including older workers requires policies to stimulate both jobs supply and employment demand. Among the policies that are recommended:

  • Enhanced training and lifelong learning that recognizes the specific circumstances of older workers, such as their relatively lower level of education
  • Encourage the adoption of age-management strategies by companies
  • Regulatory frameworks to facilitate part-time and flexible employment for older workers
  • Specific initiatives to improve women’s’ participation in the workforce such as improvements to the quality, affordability and availability of childcare, legal reforms and addressing gender norms and attitudes.
  • In the longer term, increasing the minimum retirement age gradually to 65 and thereafter linking it to life expectancy could raise GDP growth by 0.3 percentage points per year.
  • Targeted, conditional and time-bound wage subsidies could also be piloted to encourage employment of older workers.

Ensuring minimum income protection to all older persons by increasing coverage and adequacy of social insurance schemes including EPF, as well as by introducing a modest, broadly targeted social pension. To accomplish this the following policies can be considered:

  • Broadening EPF coverage to cover more self-employed and informal sector workers
  • Requiring the registration of all workers to EPF before the granting of business licenses or government contracts
  • Increasing the average EPF balances at retirement requires a longer-term approach such as the gradual increase of the minimal EPF withdrawal age to 65 and thereafter linking it to life expectancy. Potentially, the EPF contribution rate could even be reduced once the withdrawal age has been adjusted, and coverage and average balances have increases.
  • A tax-financed social pension may, however, be required to ensure coverage of the most vulnerable Malaysians. For instance, a RM350 per month targeted pension for the B40 age over 65 could be rolled out using the existing Bantuan Sara Hidup (BSH) system.

Building an inclusive aged care system supporting private, not-for-profit provision, strengthened governance, and selectively increased public financing. This would require:

  • Developing a systemic and actionable aged care strategy
  • Improving quality standards of aged care homes
  • Streamlining licensing requirements
  • Turning public financing towards home and community-based aged care
  • Upgrading skills of aged care workers
  • Incentivizing market-oriented care provision