Social Pension, Aging and Poverty

Social Security Research Centre,

University of Malaya

On life's Journey...

Authors: Saidatulakmal Mohd (USM), Norma Mansor (UM) & Shamsulbahriah Ku Ahmad (UM)

Study funded by Social Security Research Centre, University of Malaya, Kuala Lumpur

What is this paper/research about?

Emerged from SSRC research on universal pension lead by Dr. Saidatulakmal(USM)

Following from one of the conference theme regarding population ageing and inadequate social security schemes in Malaysia

Possible inputs for the Eleventh Malaysia Plan

Qualifications

Work in progress (raw draft) : while exploring what could be the best option/s for cost

Preliminary approach: in this paper using sensitivity analysis (proposed by the main author)

Other Approaches: calibration analysis, regression analysis or as the World Bank PROST model and the common cost benefit analysis.

Main Focus

This paper attempts to estimate the financial cost of social pension schemes as a percentage to GDP.

Quantify the role of social pension in reducing elderly poverty in Malaysia.

Estimations were made using the 2009 Household Income Expenditure (HIES) survey.

To be replicated using the recent 2012 HIS data to further assess the impact of social pension cost and poverty reduction.

The final analysis will be further corroborated by other supporting data.

Structure

Background Information

Distribution of population in Malaysia

• Percentage population aged 55 years

an above increase from 7.6 percent

in 1970 to 12.3 percent in 2012

• 2015 Malaysia’s population aged 65

years and above will be six percent

of the total population

• Percentage population aged 55 years

an above increase from 7.6 percent

in 1970 to 12.3 percent in 2012

• 2015 Malaysia’s population aged 65

years and above will be six percent

of the total population

Growth Rates of Elderly vs. Growth Rate of the Total Population

The growth of elderly population surpasses the growth of the total population.

Table 2: Profile of elderly: HIES2009

CharacteristiCharacteristiccs of elderlys of elderly

GenderAGE

Marital Status

Ethnicity

Education

Strata

Working Status

Living Arrangements

Male : 48.05Female : 51.95

60-64 : 36.3365-69 : 25.7270-74 : 18.8275-79 : 9.880 & Above: 9.29

Married : 65.08Others : 34.92

Bumiputra : 50.86Chinese : 34.9Indian : 5.28Others : 8.96

Urban : 64.72Rural : 35.28

Primary : 43.25 Secondary : 19.42Tertiary : 3.79None : 33.54

Working : 24.55Not Working/Others: 75.45

LIVED WITHOthers: 0.26Alone: 6.18Spouse: 17.94Other Elderly: 1.31Spouse & Adult Child: 64.17 Spouse & Young Child: 10.15

Table 2: Profile of elderly living in poverty: HIES2009 (revised)

Characteristic Characteristic of Elderly of Elderly Living in Living in PovertyPoverty

Marital Status

Ethnicity

Education

Strata

Employment Status

Male : 7.00 (262)Female : 10.00 (402)Male (HoHH) : 7.9 (223)Male (Mem) : 4.3 (39)Female (HoHH) : 29.0 (230)Female (Mem) : 5.3 (172)

60-64 : 5.75 (161)65-69 : 7.97 (158)70-74 : 10.06 (146)75-79 : 13.89 (105)80 & Above: 13.11 (94)

Married : 12.7 (342)Others : 6.4 (322)

Bumiputra : 11.10 (435)Chinese : 2.79 (75)Indian : 5.16 (21)Others : 19.25 (133)

Urban : 5.7 (285)Rural : 13.94 (379)

Primary : 7.62 (254)Secondary : 2.0 (30)Tertiary : 0.68 (2)None : 14.62 (378)

Working : 7.82 (148)Not Working/Others: 17.76 (516)

Gender

AGE

Multi Pillar Framework to prepare for and live in retirement

FOUR PILLARS OF RETIREMENTFOUR PILLARS OF RETIREMENT

Study Focus: Pillar 0 - Methodology

Strengthening Pillar Zero

Exploring the possibilities of introducing social pensionExploring the possibilities of introducing social pension

Methodology – Objective One

Analysis include:Analysis include:

2211 33

Methodology – Objective Two

Analysis include:Analysis include:

2211 33

Table 4: Baseline simulation on projected cost of a Social Pension

Eligibility age = 60 years old Eligibility age = 65 years old

Fixed benefit Benefit increased with percentage of GDP beginning 2013

Fixed benefit Benefit increased with percentage of GDP beginning 2013

Initial benefits

300 400 800 300 400 800 300 400 800 300 400 800

2010 1.02 1.36 2.72 1.02 1.36 2.72 0.65 0.86 1.72 0.65 0.86 1.72

2013 0.93 1.23 2.47 1.11 1.47 2.95 0.59 0.79 1.57 0.71 0.94 1.89

2015 0.88 1.17 2.34 1.17 1.56 3.12 0.56 0.75 1.50 0.75 0.99 1.99

2020 0.76 1.02 2.04 1.37 1.82 3.64 0.49 0.66 1.31 0.88 1.17 2.34

Table 4 Findings

If eligibility age was 60 years old, the costs decreased from 1.36 percent in 2010 to 1.02 percent in 2020, if benefits were kept fixed at RM400 per month.

• If benefit increased with percentage of GDP beginning 2013, cost increased from 1.02 percent in 2010 to 1.37 percent, if initial benefit was RM300 per month.

If eligibility age was 65 years old, the cost decreased from 1.72 percent in 2010 to 1.31 percent in 2020, with benefits fixed at RM800 per month.

• If benefit increased with percentage of GDP beginning 2013, cost increased from 0.86 percent in 2010 to 1.17 percent, if initial benefit was RM400 per month.

Table 5: Baseline simulation on poverty and projected cost of a Social Pension – HIES2009

Table 5: Findings

Highest cost incurred if the social pension schemes were given to all elderly irrespective of income either at age 60 or at age 65 years old

• Change in poverty incidence ranged between -4.48 percent and -8.46 percent.

Social pension targeting only households with co-residing elderly

• Cost was highest if all households with co-residing elderly (aged 60 and above) received the benefits with highest cost of 5.42 percent of income if benefits were RM800 and 0.24 percent of income if benefits were RM400

• If the social pension was only targeted to poor households with co-residing elderly aged 60 years and above, the cost as percentage of income was only 0.48 percent of income if benefits were RM800 per month. Elderly poverty was also eliminated in this case.

Table 5: Findings

Social pension Targeting households headed by elderly

• This targeted scheme covered the least number of elderly as they were only 3.549 households headed by elderly aged 60 years old and above, of which, 450 households were living below the PLI.

• If RM800 benefits were given to only the poor households, the cost as a percentage of income was only 0.43 percent and poverty incidence reduced to 0.91 percent.

Conclusion: Expanding coverage, fiscal sustainability and addressing informality

Cost is normally cited as a major obstacle in providing social pension, some form of social pension could be still implemented, while keeping the cost at a minimum.

Sensitivity analysis indicated that the cost of social pension could be kept at an average of 1.30 percentage of GDP; appropriate targeting reduces costs.

The 2009 HIES data also indicated that elderly poverty could eventually be eradicated with social pension while cost of the social pension was kept at reasonable levels

Social pension could be expanded to include other excluded groups

Profile Data Female Headed Households

Self-employed (own account workers) / Unemployed

Bumi / pribumis / “others”

Low Education / Uneducated

Is there a case for universal pension?

Should Malaysia adopt a “universal pension” initially for the eradication of poverty among the elderly as a mandated policy instrument:

• Moving from the residual to the “human right” approach “to live with dignity in old age”. So social pension is not just about the cost to the government but also can be seen as a social responsibility.

• A multi-tier social pension system to cover excluded groups.

Thank you

Authors: Saidatulakmal Mohd (USM), Norma Mansor (UM) & Shamsulbahriah Ku Ahmad (UM)

Study funded by Social Security Research Centre, University of Malaya, Kuala Lumpur

Social Security Research Centre,

University of Malaya