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Old-Age Financial Protection in Malaysia: Challenges and Options

Author

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  • Holzmann, Robert

    (University of New South Wales)

Abstract

This policy paper presents key findings and suggestions on Malaysia's old-age financial protection system within the context of the country's broader social security framework. The trademark policy approach focusing on job creation instead of expanding social security programs served the country well to move it quickly to a high-middle income level. But to join the club of high-income countries in a sustainable manner may require the country to review its approach to social security, including the way old-age income support is provided, and to address the main current weaknesses: fragmentation across economic sectors, lack of an enabling political environment, incomplete benefit coverage, low mandated savings level, and inadequate disbursement options given the challenges of projected population aging and socioeconomic shifts. To address the old-age financial protection challenge, the paper outlines two key options for Malaysia's Employees Provident Fund, the country's central pension pillar: (i) moving from a mere retirement savings investment fund to a fully-fledged pension fund that offers some minimum annuities; or (ii) more radically, moving the benefits toward a Non-Financial Defined Contribution scheme with the fund's resources used as its major reserve fund. Whatever approach is considered, the reform discourse would benefit from changes in the overall governance structure of social security and from a comprehensive research agenda that offers an evidence based decision making.

Suggested Citation

  • Holzmann, Robert, 2015. "Old-Age Financial Protection in Malaysia: Challenges and Options," IZA Policy Papers 96, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izapps:pp96
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    References listed on IDEAS

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    1. Robert Holzmann & Steen Jørgensen, 2001. "Social Risk Management: A New Conceptual Framework for Social Protection, and Beyond," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 529-556, August.
    2. Milan Vodopivec, 2013. "Introducing unemployment insurance to developing countries," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-23, December.
    3. Maria Laura Oliveri & Rafael Rofman, 2012. "Pension Coverage in Latin America : Trends and Determinants," World Bank Publications - Reports 13561, The World Bank Group.
    4. Sudhir Rajkumar & Mark C. Dorfman, 2011. "Governance and Investment of Public Pension Assets : Practitioners' Perspectives," World Bank Publications - Books, The World Bank Group, number 2553, April.
    5. Brown, Jeffrey R. & Mitchell, Olivia S. & Poterba, James M. & Warshawsky, Mark J., 2001. "The Role of Annuity Markets in Financing Retirement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025094, December.
    6. Milan Vodopivec & Robert Holzmann, 2012. "Reforming Severance Pay : An International Perspective," World Bank Publications - Books, The World Bank Group, number 2369, April.
    7. Noriyuki Takayama & Robert Holzmann & David A. Robalino, 2009. "Closing the Coverage Gap : The Role of Social Pensions and Other Retirement Income Transfers," World Bank Publications - Books, The World Bank Group, number 2651, April.
    8. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(2), pages 137-150.
    9. Richard Hinz & Robert Holzmann & David Tuesta & Noriyuki Takayama, 2013. "Matching Contributions for Pensions : A Review of International Experience," World Bank Publications - Books, The World Bank Group, number 11968, April.
    10. Holzmann, Robert & Koettl, Johannes & Chernetsky, Taras, 2005. "Portability regimes of pension and health care benefits for international migrants: an analysis of issues and good practices," The Social Policy and Labor Discussion Paper Series 32750, The World Bank.
    11. Holzmann, Robert & Koettl, Johannes, 2011. "Portability of Pension, Health, and Other Social Benefits: Facts, Concepts, Issues," IZA Discussion Papers 5715, IZA Network @ LISER.
    12. Emil Tesliuc & Margaret Grosh & Azedine Ouerghi & Carlo del Ninno, 2008. "For Protection and Promotion : The Design and Implementation of Effective Safety Nets," World Bank Publications - Books, The World Bank Group, number 6582, April.
    13. Richard Hinz & Robert Holzmann, 2005. "Old Age Income Support in the 21st century: An International Perspective on Pension Systems and Reform," World Bank Publications - Books, The World Bank Group, number 7336, April.
    14. Donghyun Park & Sang-Hyop Lee & Andrew Mason (ed.), 2012. "Aging, Economic Growth, and Old-Age Security in Asia," Books, Edward Elgar Publishing, number 15088, June.
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    Cited by:

    1. Jaafar, Roslan & Daly, Kevin James & Mishra, Anil V., 2019. "Challenges facing Malaysia pension scheme in an era of ageing population," Finance Research Letters, Elsevier, vol. 30(C), pages 334-340.
    2. Zarul Khaliff Kamal* & Siti Mardhiah Isa & Ros Idayuwati Alaudin & Noriszura Ismail, 2018. "Adequacy of Retirement Wealth in Malaysia: Spending Behaviour Analysis," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 429-435:6.

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    Keywords

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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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