This study examines whether Malaysia should expand its social pension coverage and adequacy by drawing on global experiences and comparing them to the Malaysian context. It explores the impacts of social pensions on various social indicators and addresses key design issues for expansion. The paper concludes with recommendations for reforms, emphasizing the need to balance welfare and equity impacts with fiscal considerations.
KEY FINDINGS
- Malaysia’s population is aging rapidly, but its social pension coverage and adequacy are relatively low. By 2045, 14% of Malaysia’s population will be 65 or older, rising to 20% by 2056. However, Malaysia’s social pension (Bantuan Warga Emas, BWE) currently covers only around 4% of the elderly—among the lowest rates globally. And although around 60% of older people receive the Sumbangan Tunai Rahmah (STR), the combined benefit from BWE and STR accounts for less than 10% of pre-transfer income for most older households. At the same time, only around 42 percent of the working age population contribute to a formal sector pension scheme, resulting in a major coverage gap in older age financial support. As a result, many older Malaysians rely on family support, but falling family size and shifting social norms are weakening this support, with an increasing number also living alone or in elderly-only households.
- Global evidence shows social pensions are correlated with reducing poverty and inequality, and increased well-being. International experience—including in China, India, and Latin America—demonstrates that even modest social pensions reduce poverty, improve health and well-being, and these improvements have a positive spillover effect to extended family members.
- Expanding Malaysia’s social pension coverage could reduce inequality and support inclusive aging. In the modelling conducted, all social pension reform scenarios result in a greater reduction in inequality compared to the current social assistance transfers to older people (both for older people and the population overall) – and this impact would continue to grow over time as the older population share rises. They would also cost-effectively reduce poverty, both among older people and overall.
- Fiscal sustainability is key, but expansion is possible with targeted design and revenue reforms. The paper provides some high priority, as well as medium-term priorities and options to consider. The high priority reforms suggested include:
- Expanding social pension coverage significantly , starting with B40 households.
- In light of rising healthy life expectancy, consider raising the eligibility age for social pensions to at least 65 years old and linking its future level automatically to increases in life expectancy.
- Expanding coverage would also require revision of the income eligibility threshold for social pensions, and should also involve rule-based indexation of benefits to retain their real value.
- Improving the targeting system and strengthening inter-operability of public sector databases.