Malaysia Prime Minister Anwar Ibrahim has expressed full support for the revamp of the country’s pension framework during his speech at an Employees Provident Fund event. His proposal focuses on expanding EPF coverage to integrate a greater number of working-age individuals.

The Prime Minister highlighted the need for a sustainable retirement system that ensures “no one is left behind” and vulnerable in their later years.

The gap in pension coverage for Malaysians

The current EPF system – despite covering 60% of the labour force – leaves a substantial 40%, equivalent to 6.8 million workers, without any formal retirement savings plan. This coverage gap proves the urgency of introducing reform – especially in light of a revealing Asian Development Bank report that found over 26% of Malaysians aged 60 and above expect to work until health issues force them to stop, largely due to inadequate retirement savings.

Moreover, a startling 1 in 4 EPF members exhausts their retirement funds within five years of retiring.

“New solutions are needed to make sure no one is left behind and every layer of society benefits from social protection,” Anwar said.

The EPF’s lump-sum withdrawal mechanism inadequately addresses retirees’ need to manage longevity risks and maintain a decent standard of living post-retirement, the Prime Minister said. As a remedy, he highlighted initiatives such as the i-Saraan Programme, which targets informal sector workers and saw a participation increase of 191% from the previous year, indicating a successful outreach and engagement strategy.

Investing in Malaysia's silver economy

Anwar also called on businesses and investors to focus on the burgeoning silver economy, which caters to older adults and is projected to reach a market value of US$15 trillion. Investments in this sector not only hold the promise of substantial returns but also align with national goals to enhance the welfare of ageing citizens and promote sustainable economic growth.

The proposed reforms, according to Anwar, are integral to broader economic strategies aiming to elevate Malaysia’s economic standing and create higher-quality jobs.

By enhancing the pension system, the government seeks to ensure that future retirees have the resources necessary to enjoy a secure and prosperous retirement, thereby fostering a more inclusive and resilient economy.

More inclusive financial security measures

This pension reform is pivotal for businesses and HR professionals as it signals a shift towards more inclusive financial security measures and underscores the importance of sustainable employment practices.

Companies may need to adjust their retirement benefits and HR policies to align with these new national standards, promoting a workforce that is both productive during their employment years and secure in retirement.

This strategic shift in retirement planning not only addresses immediate demographic challenges but also sets a precedent for how nations might manage ageing populations with dignity and economic foresight.