EPF and stable salaried employment alone no longer provide adequate retirement security
KUCHING: Malaysia is ageing far faster than previously assumed, with the share of those aged 65 and above projected to double to about 14 per cent by 2040, according to a new research paper by PNB Research Institute.
The paper said Malaysia crossed the “ageing society” threshold in 2022 when the 65-and-over population exceeded 7 per cent, rising further to 7.7 per cent by 2024.
“Malaysia’s demographic transition is no longer a distant outlook. It is a structural reality unfolding within a compressed time frame,” it said.
The study said that the country is entering this phase with weak retirement preparedness. Many contributors in their 40s and 50s hold Employees Provident Fund (EPF) balances far below what is needed to sustain adequate income in old age.
Citing EPF estimates, the paper said only 18 per cent of male members and 12 per cent of female members had reached the basic savings threshold of RM240,000 by age 55 in 2022. It added that half of all EPF contributors had less than RM10,000 in savings in 2023 — enough for only about three months of retirement income.
The problem is compounded by labour market realities, with large numbers of workers — especially those in informal, gig and self-employed roles — remaining outside formal retirement protection.
“There is a structural imbalance between Malaysia’s retirement savings and the realities of its labour market and life-course earnings trajectories,” the paper said.
Demographically, Malaysia has already passed the peak of its dividend. The working-age population share peaked at about 69 per cent in 2020 and has since begun to decline. Large cohorts that powered the labour force between 2020 and 2025 are expected to move into pre-retirement and retirement by 2040, while smaller cohorts enter the workforce.
Because this peak did not translate into strong productivity growth, high savings or widespread asset ownership, the paper said Malaysia now approaches ageing with the economic characteristics of a middle-income country.
The study linked weak savings capacity to long-term wage trends. Drawing on nearly three decades of wage and income survey data, it found that wage growth has been generally suppressed and regressive after adjusting for structural factors such as minimum wage policies.
Without minimum wage interventions, low-wage workers would have seen little to no real income growth, it said. Real median wages have remained stagnant, with nearly 60 per cent of employees earning below RM4,000 a month.
Returns to education have also compressed sharply. In 1997, a fresh degree holder earned about 2.7 times the median salary of an SPM holder. By 2022, that multiple had fallen to 1.7 times.
In real terms, median entry-level pay for master’s graduates declined by 28 per cent between 1997 and 2022, while bachelor’s graduates saw a 10 per cent decline.
“Put differently, a fresh master’s graduate entering the private sector in 2022 effectively earned almost one-third less than her counterpart in 1997,” the paper said.
Beyond wages, income and wealth concentration has widened. As of 2022, the bottom 20 per cent of households held less than 6 per cent of national income, while the top 20 per cent captured 41 per cent.
The top 10 per cent controlled nearly 60 per cent of total wealth, while the bottom half shared less than 15 per cent. While labour’s share of GDP rose over the past two decades, the paper noted signs of post-pandemic erosion.
Referencing economist Diane Coyle, the study said policymakers often confuse income flows with wealth stocks, underestimating the importance of asset ownership in long-term economic security.
The paper argued that the policy challenge extends beyond rising healthcare and pension costs. It defined economic security as stable and sufficient income combined with ownership of financial, human and social assets, allowing households to absorb shocks, invest in the future and age with dignity.
Malaysia’s welfare architecture, it said, was designed for a younger economy, based on assumptions of stable formal employment and broad access to public education, healthcare and subsidies. While these structures delivered important gains, coverage remains uneven and leaves critical gaps.
The study noted that the 13th Malaysia Plan acknowledges the limits of a welfare model heavily tied to formal employment.
“The key argument of this paper is that Malaysia must evolve from a welfare-competent state to an economically secure society rooted in broad-based wealth ownership,” it said.
On resilience, the paper highlighted growing exposure to automation, climate instability, pandemics, geopolitical tensions and financial cycles. These risks are amplified by low retirement adequacy, high household debt, thin emergency buffers, low insurance penetration and limited risk pooling.
It said strengthening resilience would require portable social protection, accessible emergency savings schemes, better data integration across savings and social insurance systems, as well as climate adaptation funds and risk-sharing mechanisms.
Stronger public goods — including healthcare, childcare and transport — were also cited as critical.
The paper stressed that its framework is conceptual and does not propose a fully specified development model or social contract, noting that the policy instruments discussed require further empirical work, institutional testing and public deliberation.
