World Bank Group: 'A Silver Lining – Productive and Inclusive Aging for Malaysia'

WASHINGTON, Dec. 17 -- World Bank Group issued the following report, dated November 2020, entitled "A Silver Lining - Productive and Inclusive Aging for Malaysia."

The report was authored by Achim Schmillen.

Here is the executive summary of the 148-page report:

Executive Summary

Introduction and Context

In 2020, Malaysia passes a crucial milestone in its demographic trajectory and becomes an aging society. Driven by a precipitous decline in fertility accompanied by a sustained rise in life expectancy, in recent years Malaysia has seen an uptick in the pace of demographic change. As a result, in 2020 it will transition to an aging society which is defined per the international convention as having 7 percent or more of the population age 65 and above (World Bank 2016). Henceforth, Malaysia will age rapidly. After 24 years, it will become an aged society, with the share of the population age 65 and above reaching 14 percent. Only 12 years later, the country will become super-aged, with the share reaching 20 percent (see Figure 0.1). Malaysia's transition from an aging to an aged society will happen at a similar pace to Japan's, whereas it took 115 years in France, 73 years in Australia and 69 years in the United States. In parallel, the old-age dependency ratio--the number of persons over the age of 65 compared with the population age 15 to 64--is projected to rise substantially from 10.4 percent in 2020 to 21.7 percent in 2040 (see Figure 0.2), accompanied by a net increase in the number of older persons by 130,000 to 210,000 per year. Although life expectancy has increased, not all of the increased years of life are spent in good health. Malaysia's healthy life expectancy at birth is estimated at 66.6 years in 2016, about a decade less than life expectancy. This divergence is partly due to the rising prevalence of noncommunicable diseases (NCDs). For example, the prevalence of diabetes among adults increased from 11.2 percent in 2011 to 18.3 percent in 2019.

Rapid aging will be one of the most crucial megatrends affecting Malaysia in coming decades, raising policy challenges in areas such as employment, income security, health care, and aged care. According to macroeconomic projections undertaken for this report, aggregate economic growth in Malaysia is expected to decline from 4.5 percent in 2019 to about 1.8 percent by 2050 and demographic changes in the form of slower population growth and a shrinking working-age to total population ratio will account for about a third of the decline (see Table 0.1). Equally important, aging threatens to increase poverty and vulnerability among older persons, especially those who are frail and in need of aged care and long-term care services. Today, poverty rates among this population group are only slightly higher than among the population as a whole--using the bottom 20 (B20) per capita income threshold as the poverty line. In 2016, the poverty rate was 21 percent for households with older persons and 19.7 percent for households without them (see Table 0.2). However, the poverty incidence for older persons rises with age and there are concerns that the vulnerability of older persons will increase as the total dependency ratio increases and families might accordingly struggle to cope. Furthermore, without strengthened public health care, the prevalence of disabilities accumulated over a life span will further increase care needs. In addition, more and more older persons are living alone, and there are concerns that household incomes might become more volatile both globally and in Malaysia. All these challenges are becoming more pressing as Malaysia is likely to transition from an upper middle-income to a high-income economy within the next few years, despite a COVID-19 induced recession in 2020, and the aspirations of its expanding middle class regarding jobs, income, and well-being continue to grow (see World Bank forthcoming).

The policy challenges created by aging should not be underestimated, but neither should the opportunities of a silver economy. Harnessing the productive potential of persons age 50 and above can help mitigate the growth effects of aging and address talent shortages while the aged care sector can become a new driver for economic growth, job creation, improved social services, and a better quality of life. In addition, recent studies have highlighted the economic potential offered by an aging society. In this context, the term silver economy has been coined to encompass all sources of opportunities that arise from economic activities to serve the needs and demands of older persons. Studies from high income countries demonstrate that older persons can potentially be relatively wealthy consumers compared with young generations. Meeting the increasing needs and demands of older persons will lead to the creation of new markets and business opportunities to spur growth, create jobs, and increase tax revenues.

While rapid aging is crucially important and will become even more so in coming decades, through the right choice of policies, the Government of Malaysia can help the country achieve productive and inclusive aging. Aware of both the challenges and opportunities of aging, relevant policy documents already reflect inclusive and productive, as well as healthy aging as key policy objectives. In 1995, the National Policy for the Elderly was Malaysia's first strategic policy on aging. To implement this policy, the National Advisory and Consultative Council for Older Persons was set up in 1996 and a Plan of Action for the Older Persons was formulated in 1998. Based on a review of the first strategic policy and the Plan of Action, the National Policy for Older Persons and the Plan of Action for Older Persons were introduced in 2011 with the goal to allow older persons to have a high sense of self-worth and dignity through development, health and well-being, as well as an enabling and supportive environment. More recently, the 11th Malaysia Plan has included initiatives to improve the supportive environment for older persons and to promote active aging while the Mid-Term Review of the Plan has emphasized the need to enhance older persons' living environments.

The COVID-19 pandemic has resulted in an unprecedented crisis with an enormous health and human toll, as well as exacerbated many of the policy challenges raised by aging both in the short term and more structurally. There are concerns that the COVID-19 crisis is creating a "new normal" for the care, income support and employment of older persons. COVID-19 infections in several aged care homes in Malaysia, including in unlicensed homes, show that older persons living in institutional settings are an exceptionally vulnerable population group. They also demonstrate the importance of service standards, in particular, health and safety standards, as part of a broader response to protect this group. In addition, the crisis may exacerbate the economic vulnerability of older persons while reducing their savings for retirement. This reduction is due to declining contributions to the Employees' Provident Fund (EPF)--the retirement savings institution with the largest coverage in Malaysia--as well as withdrawals from EPF accounts and declines in asset prices. Finally, the very elevated rates of unemployment and underemployment due to the crisis lend urgency to policies that allow workers who have lost their employment, including older workers, to return to work. Recognizing that there is no evidence that increased employment among late-career workers negatively affects the employment prospects of younger workers, required policies might include the provision of enhanced and tailored opportunities for upskilling and reskilling that take into account both temporary and potentially permanent changes in labor demand brought about by the crisis.

The report analyzes Malaysia's demographic, socioeconomic and macroeconomic contexts, as well as three select key policy areas where critical knowledge gaps exist-employment, income security, and aged care. Although the report recognizes that aging cuts across multiple sectors and requires a life cycle perspective, not all sectors are comprehensively addressed. Nutrition, basic education, and health care are notable omissions, not because these are any less important than employment, income security, and aged care, but because the focus of the report is on select policy areas with large knowledge gaps. Similarly, the report recognizes that aging is a cross-cutting and multi-dimensional issue with productive aging, inclusive aging and healthy aging as key, equally important dimensions, but does not discuss healthy aging in detail.

Methodologically, the report relies on a mixed methods approach that combines quantitative, qualitative and institutional research. The quantitative research is conducted using recent, nationally representative data from the Department of Statistics Malaysia in addition to international data sources. Complementing the quantitative investigation, qualitative and institutional analyses are used to improve the understanding of the constraints behind the most significant challenges identified by quantitative data. The qualitative analysis focuses on aged care and employs semi-structured interviews with diverse stakeholders to answer questions regarding the roles and responsibilities of older persons, families, communities, NGOs, the private sector, and the Government. The interviews also take into account caregivers' and older persons' experiences, preferences, ideas, concerns, and expectations. The institutional analysis encompasses a desk review of relevant laws, policies, and regulations.

Findings

Compared to other upper middle- and high-income countries, the employment rate of those age 50 to 74 in Malaysia is low, especially among women, and some persons in this age group struggle to find flexible, productive and inclusive employment. In Malaysia, the employment rate--calculated as the share of persons employed at a given age--for persons age 50 to 74 stands at 45.9 percent, which is lower than in most other upper middle- and high-income countries. The differences between Malaysia and comparator countries are, to a large extent, driven by Malaysia's relatively low employment rates for persons between age 50 and 64, as well as for women (see Figure 0.3). In turn, the low employment rate among persons between age 50 and 64 is arguably at least partly driven by the relatively low minimum retirement age and low EPF minimum withdrawal age while women face constraints related to childcare, the legal environment, and gender norms and attitudes. As workers age, prevalent types of employment also change. Both self-employment and part-time work are relatively more common among older workers. Outside of agriculture, 19 percent of employed men and women age 40 to 44 are self-employed, but this is the case for 43.1 percent of employed men and half of employed women age 60 to 64. While these changes in the types of jobs are arguably at least partly due to workers' preferences, there is clear room for an improved policy environment to allow more of them to find flexible, productive and inclusive employment. Also of note, there is no evidence that increased employment among older workers negatively affects the employment prospects of younger workers either in Malaysia or internationally.

Adequacy and coverage of Malaysia's system of contributory social insurance and non-contributory social assistance for older persons are major challenges. EPF as Malaysia's main private-sector retirement savings scheme is a defined-contribution provident fund. Seventy percent of EPF contributions are placed in Account 1, dedicated to retirement savings, while the remaining 30 percent goes into Account 2, which can be used for broader purposes. The reliance on a defined-contribution provident fund places Malaysia in the relatively unusual situation that--outside of the civil service pension system--institutions providing old-age income security pose no fiscal risks. At the same time, in the absence of a broad non-contributory social assistance program for older persons, almost all old-age income security risks rest with these persons and their families. In fact, at 60.8 percent, participation in contributory retirement savings institutions is low, especially when compared to an aspirational peer group of high-income countries. Coverage is especially low among lower-income households, with less than a fifth of working-age B20 being active EPF contributors. In addition, the majority of EPF contributors will only receive very low benefits in retirement, because participation in covered employment is intermittent and the minimum withdrawal age is low. Almost three quarters of workers at age 54 have balances of under RM250,000 (see Figure 0.4). Translated into an indexed annuity, almost three quarters of workers will have a monthly benefit of less than RM1,050, only slightly more than the poverty line income (PLI) of RM980 before its recent revision. As most older persons in Malaysia have inadequate EPF benefits or none at all, it falls either to families or to very limited noncontributory social assistance to protect older persons against poverty and destitution. The Department of Social Welfare (Jabatan Kebajikan Masyarakat or JKM) provides cash assistance for poor and vulnerable older persons through the Financial Assistance for Older Persons (Bantuan Orang Tua or BOT) program, among others. Although JKM programs are targeted toward the poor, their budget allocation and coverage are both small. Only slightly more than a quarter of households with members age 65 and older in the B20 receive assistance from JKM (see Figure 0.5).

Rapid aging accompanied by a changing socioeconomic context and increasing prevalence of NCDs will threaten existing aged care arrangements. As in many other countries in East Asia, familial provision of aged care has long played a critical role in Malaysia whereby frail older persons get support and care from their spouses, children, and other relatives. However, this traditional arrangement shows signs of weakening as the typical household structure changes from large, multi-generational households toward small nuclear ones. While co-residence remains common, the share of three-generation households declined from 41.1 percent in 2004 to 30.7 percent in 2016. The decline in co-residence may affect households' ability to informally provide care to older household members. In parallel, there are more and more persons who have a high probability of having functional limitations in activities of daily living (ADLs) and dependency in instrumental activities of daily living (IADLs).1 The number of persons with ADLs functional limitations is projected to more than double from 2020 to 2040 while the number of persons with IADLs dependency is projected to increase by about one million per decade (see Figure 0.6), reflecting the lifelong impact of a high prevalence of NCDs in addition to demographic trends. Already today, an estimated 250,000 older persons have dementia while many care needs are unmet--according to the National Health and Morbidity Survey 2018, 30.8 percent of those age 60 and above are malnourished. On top of that, the survey also found that 30.8 percent of those in that same age group have poor social support. Meanwhile, in terms of formal provision, institutional care is very limited and home- or community-based care is still at an early stage of development. Public financing of aged care is very limited as well and weighted toward institutional care with relatively low quality of services for a small number of destitute older persons. Coverage of private institutional care is low and uneven across space. While there are some experiments with a focus on urban areas to explore viable business and service delivery models for home, community-based and institutional care, there are also significant challenges with regard to service quality, human resources, and governance arrangements.

Aging poses particular challenges for women's employment, income security and aged care needs. Across all age groups, employment rates are significantly lower for women than for men. The gap is largest between age 50 and 60 as women on average retire earlier. In 2016, 59.7 percent of men age 60 but only 17.9 percent of women age 60 were employed. Arguably, gender differences in employment rates are due to constraints related to childcare, the legal environment, and norms and attitudes (see World Bank 2019a). Women also have both lower rates of EPF coverage and lower balances. In addition to the low employment rates among women, this is because a relatively large share of women who participate in the labor market is self-employed or engaged as unpaid family workers and thus often not covered by social insurance. Moreover, women who are covered by social insurance on average have lower EPF balances than men, partly due to the prevailing gender wage gap. As a result, the average EPF balance at age 54 is RM177,000 for women and RM233,000 for men. With regard to aged care, since women on average live longer, they have particularly pronounced care needs. In addition, the large majority of aged care workers are women. This is the case for 55.8 percent, 77.4 percent, and 93.6 percent of personal care workers, health workers, and domestic workers, respectively. Thus, strengthened arrangements for training and qualifications to upgrade skills of aged care workers can have particularly beneficial effects for women.

Policy Options

An integrated, interagency policy approach can address challenges and grasp opportunities in a systematic and mutually reinforcing way. Reducing some of the barriers to productive and inclusive aging will require clear prioritization and finely calibrated policy approaches. At the same time, many of the recommended policy approaches to achieve productive and inclusive aging will address more than one barrier and different approaches will be mutually reinforcing and can create opportunities for a silver economy. For instance, an increase in the minimum retirement age to 65 can not only improve employment opportunities for older workers, but also foster old-age income security. In addition to that, more productive and inclusive aging is certainly a cross-sectoral endeavor; some of the most crucial policy approaches such as strengthening the governance of the aged care sector will necessitate cooperation between different ministries and agencies. Therefore, a systematic and integrated interagency approach to the promotion of productive and inclusive aging--as well as one that adopts a life cycle perspective, mainstreams approaches to address the specific constraints faced by women, and is mindful of political economy considerations--will have the most pronounced and sustainable impact. Ideally, this approach would be guided by an integrated strategy and supervised by a steering committee.

The promotion of productive and inclusive aging will require policies that foster the productive employment of all workers, provide minimum income protection to all older persons, and build an inclusive aged care system. General policy directions as well specific short-term, medium-term and long-term policy options are laid out in Table 0.3, with the caveat that this distinction is not always entirely clear-cut and that for some of the long-term policy options to be effective, implantation needs to begin in the short or medium term. In the future, Malaysians will have to work longer in order to ensure adequate financial protection in old age. But they will also be more able to do so, being healthier for longer, with less physically demanding occupations, and with more digitally-enabled work places. As in nearly all high-income countries, longer working lives will in turn require gradual adjustments to the minimum retirement age in line with increasing longevity, and in the EPF minimum withdrawal age, among other policy parameters. In parallel, policies are needed that foster workers' productive employment--such as enhanced opportunities for training and lifelong learning. In addition, the provision of minimum income protection of older workers will require improvements in the coverage and adequacy of social insurance schemes, as well as the introduction of a modest, broadly targeted tax-financed social pension. Finally, for the aged care sector to become a new driver of economic growth, it will be crucially important to create an enabling market and regulatory environment for private aged care provision, to strengthen the governance of the sector, and to selectively increase public financing in line with available fiscal space.

POLICY DIRECTION 1 Foster the productive employment of all workers, including older workers, through a comprehensive set of demand- and supply-side policies. A first policy option to foster productive employment in the short term is to provide enhanced opportunities for training and lifelong learning that take into account the specific circumstances of older workers, such as their generally relatively low level of education. In addition, policies could encourage and facilitate the adoption of age-management strategies encompassing work organization, work equipment, working time policies, and training, among other aspects. In the medium term, it is recommended to develop a regulatory framework for the productive and flexible employment of older workers and to facilitate part-time and other flexible forms of employment. In order not to exacerbate existing gender imbalances in Malaysia's labor market, it will also be important to address women's specific constraints to labor market participation. Relevant initiatives include better availability, quality and affordability of childcare, reforms of the legal environment and improved support for parents in line with international legal norms, and policies that address gender norms and attitudes (see World Bank 2019b). A long-term policy option is to gradually increase the minimum retirement age to 65, and thereafter link it to life expectancy. Macroeconomic projections indicate that increasing the retirement age to 65 could raise GDP growth by 0.3 percentage points per year while a review of the relevant international experience and data for Malaysia finds no evidence that increased employment among older workers negatively affects the employment prospects of younger workers. Also in the long term, these initiatives could be coupled with the piloting of financial incentives to encourage the employment of older workers--such as targeted, conditional, and time-bound wage subsidies.

POLICY DIRECTION 2 Provide minimum income protection to all older persons through increased coverage and adequacy of savings and social insurance schemes, as well as a modest, broadly targeted tax-financed social pension. In the short term, an integrated vision of a system for old-age income security that provides minimum protection to all older persons and policy measures in the areas of both social insurance and social assistance can be developed. With regard to social insurance, proactive measures can improve the coverage and adequacy of relevant schemes, including EPF retirement savings and the Social Security Organisation's work injury, disability and survivorship insurance schemes. Several measures could increase the proportion of workers actively contributing to EPF and ensure that retirement savings could be sustained for longer. To increase coverage, oversight could be improved, including through a requirement for the registration of all workers as a condition for the granting of business licenses and/or government contracts. To raise average balances, in the long term the minimum withdrawal age for EPF could gradually be increased to 65 through a well-considered transition process, for instance over a period of 20 years (which of course would need to begin in the short or medium term). In addition, consideration could be given to converting all contributions to EPF wholly into retirement savings, to transitioning to phased withdrawals of EPF balances, and to exploring longevity insurance and annuitization options. Over time, the EPF contribution rate could be reduced as the benefit eligibility age increases, provided that there is an observed increase in coverage and adequacy. However, even with all these measures it is unlikely that social insurance schemes can ever cover the entire labor force. Thus, a modest, broadly targeted tax-financed social pension may also be required. In the short or medium term, one practical option would be to introduce a social pension of RM350 per month targeted at the B40 age 65 and over and using the BSH implementation system.

POLICY DIRECTION 3 Build an inclusive aged care system with an enabling market and regulatory environment for private not-for-profit provision, strengthened governance, and selectively increased public financing. In the short term, the development of an inclusive aged care system could be guided by a systematic and actionable aged care strategy which in turn could be based on a comprehensive assessment and diagnostic. In light of the COVID-19 pandemic, it will be particularly crucial to continuously improve the aged care infrastructure and service standards to ensure the health and safety of residents of aged care homes. In the medium term, institutional barriers could be removed and licensing requirements and processes for existing unlicensed aged care facilities and potential new market entrants could be streamlined and harmonized. Furthermore, the Government's role has already begun to shift from a "supplier and provider" to a "purchaser and regulator" of aged care services. However, this process could be accelerated, including through the establishment of public-private partnerships, and through shifting to results- instead of input-based commissioning. In the long term, it will also be important to strengthen arrangements for training and qualifications to upgrade the skills of aged care workers. For publicly financed aged care services, an approach that combines needs assessments and means tests to determine the eligibility of older persons could be considered. Finally, it is recommended to increase and strategically reorient public financing for aged care services. In this context, public financing could shift toward home and community-based aged care, address imbalances across space, mobilize private and social investments, and extend the coverage of low-income households.

Full-text: http://documents1.worldbank.org/curated/en/287981606116408851/pdf/A-Silver-Lining-Productive-and-Inclusive-Aging-for-Malaysia.pdf

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