A SPECIAL social pension scheme for low-income Malaysians older than 65 are among measures that Malaysia can enact to emerge stronger from the coronavirus crisis, said the World Bank.

A pension will ensure the welfare of more retirees, especially since nearly 40% of workers are not covered by either the Employees’ Provident Fund or the public sector pension.

World Bank senior economist Achim Schmillen said better social protections will create a stronger buffer for the country to weather future economic shocks.

It would also help Malaysia deal with challenges related to the changing nature of work, such as gig workers who don’t save enough for retirement, said Schmillen of the bank’s social protection and jobs global practice.

Enhanced social protections will also prepare Malaysia as it rapidly turns into an aging nation as those above 65 will make up 40% of the population by 2025.

Although the country has a wide range of schemes to help the poor, rural folk, micro-entrepreneurs and the elderly, aid from these programmes is not distributed effectively or adequately, said Schmillen.

These include schemes, such as the bantuan sara hidup (BSH), aimed at the B40 and EPF.

“In Malaysia, coverage is very high where more than 98% of B20 is covered by some form of social assistance and this rate is higher than the average for upper-middle-income countries,” he said during a presentation of the latest Malaysia economic monitor.

However, the amount is inadequate as the aid makes up less than 8% of the B20 share of income and this is lower than other middle-income countries.

“As a result, social assistance programmes alone are not enough to guarantee an adequate income for the most vulnerable.”

Malaysia’s spending on social aid programmes is also 1% of gross domestic product, which is less than the average for upper-middle and high-income countries.

This low level of spending means that the programmes have modest impact on reducing poverty and income inequality, he added.

When it comes to retirement savings, nearly 40% of Malaysian workers are not covered either by the EPF (48.9%) or public sector pensions (11.9%).

“Coverage is lower among low-income households and even workers contributing to EPF move in and out of coverage employment.

“As a result, at 54, more than half have balances under RM150,000 and three quarters have balances below RM200,000. Given the life expectancy Malaysians, this is inadequate to support retirement.

Schmillen proposed both short- and long-term measures to enhance the social-protection system, which could be introduced in the 12th Malaysia Plan.

In the near term, the government should consider providing additional cash aid for B40 families to weather the downturn.

“These are important to mitigate financial strains, support medium-term recovery efforts, support consumption and human-capital development during an economic downturn.”

To increase the amount of EPF contributors, the government can work with gig economy platforms to institute mandatory contributions.

“Measures to increase the amount of contributions should also be done to ensure that savings can be sustained for a longer period and that the withdrawal age be increased from 55 to 65.”

Even with these measures, Schmillen said it is unlikely that the EPF would be unable to cover all workers.

“So, we must introduce a modest, broadly targeted and publicly financed social pension scheme that could be based on the current bantuan orang tua programme.”

Such a scheme should provide cash and non-cash assistance to citizens above 65 in the form of affordable health and elderly care services.

“This is an opportunity for Malaysia to emerge stronger from the crisis that builds resilience and protects the most vulnerable.” – June 26, 2020.