MALAYSIA’S aged population growth is expected to be the second highest among the countries under coverage of RHB Research.

The elderly in Malaysia are expected to grow at a compound annual growth rate of 4.5% from 2022 to 2030, the research house said.

Citing World Bank data, it said the percentage of the aged population will balloon to 20% by 2056 and the key reasons behind the rising percentage of the aged population are the increase in life expectancy and the declining birth rate.

“Malaysia’s baseline economic growth is expected to decline to 1.8% in 2050 from 8.7% in 2022.

“The rapid change in the demographic landscape is expected to raise policy challenges in areas such as employment, sustainability of pension funds, income security, healthcare, and aged care, in order to sustain its economy growth,” it said in its November 2023 Regional Thematic report today.

The research house noted that the rapid shift towards an ageing demographic status would mean a continuation of the decline of the working population.

The number of Malaysians in the 25 and under and 26-64 age groups are expected to undergo -0.7% and 1.5% CAGRs from 2019 to 2030, putting the country at a risk of slowing growth, it said.

It said the shrinking working population will lead to a narrower tax base, causing government revenue collection to plunge.

“The potential impact from a socioeconomic context would be the tendency to delay the retirement age due to insufficient pension savings, as well as the increasing need for aged care spending.

“Members of the low-income segment who have left the workforce must either rely on their children or their pension benefits to survive,” RHB Research said.

It noted that the latest budget announcement had highlighted the importance of prioritising the financial security and prosperity of the country’s ageing population due to the low level of protection under the existing formal pension and retirement schemes.

The current retirement age in Malaysia is lower than that in the neighbouring countries, such as the Philippines (65) and Singapore (62), South Korea (65), and the United States (66).

“While the retirement age in Malaysia has increased to 60 since 2013, the full Employees Provident Fund (EPF) withdrawals are allowed at the age of 55 while contributions from age 55 to 60 can be withdrawn at age 60, despite the huge increase in life expectancy in the past few decades,” it shared.

It said Malaysians will have to work longer in the future to ensure financial adequacy in their old age.

It said strategic policy decisions are crucial to ensure the wellbeing of the aged population, especially for those who intend to remain in the workforce.

According to EPF data, 51.5%, or 6.67 million, of its members under 55 years old had savings below RM10,000 as of 2022 compared to 6.08 million in 2021.

The decline in pension savings can be attributed to the multiple rounds of special withdrawal of EPF funds allowed during the Covid-19 pandemic, it said.

“However, one should bear in mind that the consequences of lower savings could lead to a delay in retirement or the risk of a person outliving his or her assets/savings.” 

Thus, to keep the elderly remaining relevant in the future workforce, preferably with less physically demanding occupations, policies that enhance opportunities for training and lifelong learning are needed to foster their employability, it noted.

“On top of that, measures that can increase the proportion of workers actively contributing to the EPF and ensure that retirement savings could be sustained for longer should be introduced.

“To increase coverage, the government may make it mandatory for the registration of all workers as a condition for the granting of business licences and/or to be qualified for government contracts,” RHB Research said.

On a positive note, the EPF continues to explore avenues to widen its coverage in the informal sector or those with no formal income, it added. – Bernama, November 8, 2023.