CURRENT statistics show that among the 32.4 million people in Malaysia, 3.9 million (12.4%) are poor, 7.5 million (23.3%) are children, 7.3 million (22.8%) live in rural areas, and 680,000 (4.2%) are unemployed. These segments of the population are highly vulnerable. The social protection system should be further enhanced to cater to their needs. Recent disasters such as the pandemic and floods underscore the need for greater attention to social protection. These events have unearthed deep structural flaws in the social protection framework in Malaysia.

While there are variations across countries, the term “social protection” usually refers to a framework whereby the three pillars of social protection, commonly known as the 3Ps – social assistance (protect), social insurance (prevent) and active labour market (ALM) programmes (promote) – are integrated or, at a minimum, coordinated. These 3Ps aims to ensure that basic needs are met, resilience against poverty is achieved, and economic potential is maximised. 

Social Insurance

Malaysia has, since 1951, developed the foundations for both social insurance policies and labour market policies with the  Employees Provident Fund (EPF), Social Security Organisation (Socso) and PSMB Act 2001. These commendable efforts have bridged some of the gaps in Malaysia’s social insurance and labour market landscape. The government’s focus over the past decade on private retirement schemes, (PRS) for example, by establishing the Private Pension Administrator (PPA) and introducing tax incentives for PRS and deferred annuity products in 2012, will further enhance the robustness of social protection.

However, adequacy and coverage are still among the challenges in Malaysia’s social insurance landscape. Public pension scheme’s liabilities are known to be underfunded as evidenced by the faster growth in the public pension expenditure vis-a-vis fiscal revenue growth i.e. 5% v 2%. Private retirement schemes, on the other hand, provide limited support in addressing this issue, since less than 3% of the workforce have a PRS account. It is a growing concern that 39% of the labour force are not covered by a formal retirement scheme. While Socso attempted to address this issue with the introduction of the Self-Employed Social Security (SESS) in 2017, the programme remains undersubscribed. 

Gaps in the social security and insurance could be addressed by expanding the coverage using a phased implementation approach, prioritising the most urgent need for coverage for the self-employed and underemployed workers. In the immediate term, a great emphasis should be placed on making the Employee Insurance Scheme (EIS) a mandatory contribution for the self-employed, starting with providing coverage for specific risk events such as pandemics, natural disasters, and/or policy changes (irrelevancy). In the long term, the feasibility of extending the coverage could be further studied to also include income-loss events and skills training for underemployed workers. Furthermore, considering the high number of informal sector and self-employed workers in Malaysia, matching defined contribution incentives – as per those successfully implemented in Latin America – should be explored by the government as this could potentially nudge the groups towards taking an interest in the PRS.

Active labour market

While the labour market conundrum remains challenging, the government has taken steps in the right direction by coordinating the labour-related policies through the establishment of Talent Corp in 2011, the introduction of National Employment Council (NEC) in 2020 and the development of Malaysia’s long-term National Job Creation Strategic Plan in 2021. 

However, in order to enhance labour mobility in the job search process, several impediments in the implementation need to be addressed. The Human Resource Development Fund (HRDF), in its report stated that the process of identifying and analysing training needs remain weak especially in terms of matching industry demand with the available upskilling and reskilling programmes offered by the government. Fragmentation and duplication of these programmes have also resulted in poor coordination between few ministries as well. The weakness in the ALM policies periodic review need to be addressed to ensure that it is constantly guided by and aligned with the National Job Creation Strategic Plan and the upcoming 12th Malaysia Plan. Invariably, the efforts to strengthen the implementation of ALM policies should revolve around boosting the synergy and coordination between the various ministries and agencies. 

Development of a unified database for Malaysia’s labour market should be explored by the government as there are currently multiple programmes managed by several agencies and ministries. Proper consideration should be made to consolidate all these programmes under one flagship platform and complemented by more granular categorisation. Consequently, continuous collaboration and close working relationships between key stakeholders namely the government, the industry, course providers and the universities need to be maintained to ensure more structured course offerings and comprehensive planning are both achievable.  

While Malaysia’s efforts towards developing a comprehensive social security system have gained considerable traction in recent years, one recognises the need to do more. One risk that Malaysia faces now is over-reliance on social assistance policies. While this is politically popular and relatively easier to implement, an over-reliance of social assistance would undermine the primary goal of ensuring poverty eradication.  As the country progresses, social protection should go beyond poverty relief and provision of basic needs. The system must be preventive in nature and enable the building of resilience, so that all Malaysians, especially the underprivileged, can enjoy socially cohesive and economically inclusive opportunities. – June 21, 2022.

* Wan Najwa Wan Sulaiman reads The Malaysian Insight.