Malaysia: Call for higher retirement age
PETALING JAYA: Surging deflationary pressure, shrinking labour force and lower tax collection are set to be the scenario as corporate Malaysia transitions into an ageing society.
With this scenario on the horizon, economists said it would have negative implications on the economy, thus proactive measures need to be mobilised to ensure economic sustainability.
With around 7% of the population aged more than 65 in 2020, the country has met the World Bank’s threshold definition of an ageing country.
The bank said that by 2044, 14% of the population is expected to be over the age of 65, making Malaysia an “aged society”.
Come 2056, Malaysia would be a “super-aged society”, with over 20% of its population above the age of 65, it noted.
According to the Malaysia Census Report 2020, those above 60 made up 10.4% or 3.4 million of the population, compared with 8% or 2.2 million in 2010.
At the same time, the population of young Malaysians had dropped from 27.6% in 2010 to 24% in 2020. The 2020 fertility rate is also the lowest in four decades.
RAM Rating Services Bhd senior economist Jason Fong told StarBiz that Malaysia’s proportion of working age population is projected to begin a steady decline by mid-2040, following which the burden of care for the dependent population would fall on fewer working-age adults.
This may have implications on consumption patterns if appropriate policies or reforms are still not in place, he said.
Fong said the negative economic impact of ageing would see shrinking consumption base due to the reduction in population growth.
At the same time, he noted that wealth and income transfers to dependents would increase for aged care.
This scenario may lead to deflation from depressed consumption patterns and stagnant growth as the population size decreases.
This may have adverse impact on household long-term saving behaviour, Fong added.
“These factors have all been exhibited to some degree by most developed countries and are especially prominent in fast-ageing countries such as Japan and Singapore.
“A smaller labour force will emerge due to a proportionately smaller population base. And a smaller tax base will be a direct result of a smaller consumption base and labour force.
“More fiscal resources will be diverted to health, pensions and old-age support, leading to less fiscal room for other development needs,” he noted.
Malaysian Rating Corp Bhd chief economist Firdaos Rosli said the government must tackle the ageing-related reforms and it is best to prioritise them accordingly so that the government could undertake the process in a structured and progressive manner.
“The immediate policy priority is to ensure that tax revenues rise in line with a growing economy amid higher capital and labour productivity. Both direct and indirect tax reforms must appear at the top of the government’s to-do list.
“Although non-tax revenues are important, they can be volatile and therefore unsuitable as a significant revenue source in the long term.
“Therefore, the retirement age should be increased alongside life expectancy, which will lead to higher tax revenues,” he said.
Firdaos said higher retirement age must also accompany economic liberalisation to offer more job opportunities for early labour market entrants.
Economic liberalisation would lead to higher national output by encouraging more foreign direct investments and business expansion to increase amid higher retirement age, he said.
RAM’s Fong said apart from raising the retirement age, policies that encourage more women participation in the labour force and improve labour productivity via rapid technological adoption and capital formation could mitigate the economic impact of ageing.
He said developed economies, which are backed by high income households and efficient infrastructure, could generally manage the adverse impact of ageing better.
“Encouraging sufficient household savings is essential to minimise the old age population burden. The general public sector has made efforts on this front prior to the pandemic (for example, tax relief for various pension schemes).
“Nevertheless, pensions have to be rebuilt given the significant drawdown throughout the pandemic.”
He said fiscal revenue reforms and expanding fiscal space should also be a priority before society ages.
“Given Malaysia’s current demographic, reforms related to consumption will be appropriate. This will ensure that fiscal resources remain sufficient for sustainable long-term development,” Fong added.
Meanwhile, Deloitte South-East Asia consulting director Lee Yun-Han said if proactive steps are not taken by the government, employers and the workforce, there would likely be negative repercussions to Malaysia’s economy.
For example, he said research suggests that an older workforce is less productive on a per-worker basis, for reasons that are still not fully understood.
Lower labour force participation rate would result in an overall lower availability of skilled workers and loss of critical skills, as well as shift in spending towards healthcare and infrastructure for the older population, he said.
Therefore, he said the country needs to redesign jobs and how work is done to capture values and strengths of older workers and leverage the power of this workforce’s skills and knowledge through fair career choices, customisable career paths, as well as mentorship and apprenticeship programmes.
Lee said the government should ensure accessibility of the physical workplace for older workers to continue to be productive such as wellness programmes, suitable ergonomic furniture and better computer monitors.
“Intentionally design phased retirement programmes to allow for greater flexibility for the aged workers to continue working.
“Organisations should seek to extend flexible schedules and remote work options to ensure their institutional knowledge and transition of the business work is successfully passed onto the next generation of workers,” he said.
“They should leverage the ageing workforce to connect with the ageing customer base and create new products and services for older buyers, as older individuals tend to have more spending power,” he added.