Targeted aid only works when systems do

KUCHING: Balancing fiscal limits with the need to protect retirees will be Malaysia’s toughest policy test as it weighs expanding its social pension system.

Swinburne University of Technology Sarawak’s lecturer, Dr Nivakan Sritharan, said the World Bank’s call for a broader social pension system underscores a real policy dilemma.

He noted that Malaysia is moving rapidly towards an aged society by the mid-2040s and a super-aged one by the mid-2050s, making social protection for seniors increasingly urgent.

Yet, he added, the country’s limited fiscal space restricts how much and how fast it can act.

“The government must weigh the benefits of wider social pension coverage against the need for fiscal discipline.

“Broader coverage can help reduce elderly poverty and offer security for those without adequate retirement savings, but it could also strain public finances,” he told Sarawak Tribune when commenting on a World Bank paper released on October 30 titled ‘Should Malaysia Expand Its Social Pension? Global Evidence, Design Issues and Options’.

Nivakan said Malaysia’s low tax-to-GDP ratio means long-term sustainability must remain a priority. However, delaying action would only widen the gap in retirement protection.

“A phased or incremental expansion, starting with the most vulnerable elderly, can provide immediate relief while giving the government time to strengthen its fiscal capacity. This ensures that expansion is both socially impactful and fiscally responsible,” he said.

He added that Malaysia’s next major challenge lies in design – deciding whether to adopt a universal social pension that covers everyone or a targeted one for lower-income groups.

“A universal model simplifies administration and avoids exclusion errors, but it is far more costly. A targeted approach is more efficient, yet it depends on strong administrative systems to identify beneficiaries accurately,” he said.

Citing global examples, Nivakan said Thailand’s near-universal pension offers modest benefits at manageable cost, while Chile supports the poorest 60 per cent of its elderly population through a targeted model.

“Malaysia could take a hybrid route, starting with targeted support through Bantuan Warga Emas and gradually expanding coverage as fiscal and administrative capacity improve,” he said.

He noted that expanding social pensions should not undermine savings and formal employment.

“Relying too heavily on non-contributory pensions may weaken incentives to save through schemes like the Employees Provident Fund (EPF). Social pensions should be seen as a safety net that complements, not replaces, contributory systems,” he said.

Nivakan also urged better data integration between the EPF, SOCSO and welfare agencies to close coverage gaps and improve efficiency.

He said complementary policies promoting active ageing, flexible retirement, and lifelong learning would further strengthen the overall pension framework.

“Expanding Malaysia’s social pension is both necessary and beneficial, but it must be done with fiscal prudence and alignment with broader structural reforms. A targeted, phased approach that balances social and fiscal goals offers the most practical way forward,” he said