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 1 Data and Preliminary Analysis 2 Background Information Aging population in Malaysia Pillars of retirement 3 Focus of Study and Methodology Financial feasibility Eligibility criteria 4 Findings and Discussions Characteristics of elderly Costs of social pension & Impact on poverty 5 Conclusion

Background Information Traditional family structure broken down Difficult to maintain a decent life Decline in fertility rate, longer life expectancy An economic and social issue Aging population An increase in elderly population Change in family structure Increase in the cost of living

Distribution of population in Malaysia

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 Gender AGE Marital Status Ethnicity Education Strata Working Status Living Arrangements Male : Female : : : : : & Above: 9.29 Married : Others : Bumiputra : Chinese : 34.9 Indian : 5.28 Others : 8.96 Urban : Rural : Primary : Secondary : Tertiary : 3.79 None : Working : Not Working/Others: LIVED WITH Others: 0.26 Alone: 6.18 Spouse: Other Elderly: 1.31 Spouse & Adult Child: Spouse & Young Child: 10.15

Table 2: Profile of elderly living in poverty: HIES2009 (revised) Marital Status Ethnicity Education Strata Employment Status Male : 7.00 (262) Female : (402) Male (HoHH) : 7.9 (223) Male (Mem) : 4.3 (39) Female (HoHH) : 29.0 (230) Female (Mem) : 5.3 (172) : 5.75 (161) : 7.97 (158) : (146) : (105) 80 & Above: (94) Married : 12.7 (342) Others : 6.4 (322) Bumiputra : (435) Chinese : 2.79 (75) Indian : 5.16 (21) Others : (133) Urban : 5.7 (285) Rural : (379) Primary : 7.62 (254) Secondary : 2.0 (30) Tertiary : 0.68 (2) None : (378) Working : 7.82 (148) Not Working/Others: (516) Gender AGE

Multi Pillar Framework to prepare for and live in retirement SOCIAL PENSION Non contributory general social assistance Old age social assistance programs SOCIAL SECURITY Social insurance program providing retirement benefits as well as survivor and disability benefits EMPLOYMENT BASED PLAN Defined contribution plans Defined benefit pension plans PERSONAL SAVINGS Annuities Bank Deposits To supplement Pillars 1 & 2 RETIREMENT CHOICES Lifestyle and financial choices Decision on retirement age & labor supply Investment decision on assets FOUR PILLARS OF RETIREMENT

Study Focus: Pillar 0 - Methodology Estimating the financial cost of Social Pension Quantify the potential role of Social Pension Scheme in reducing elderly’s poverty Strengthening Pillar Zero

Exploring the possibilities of introducing social pension RM400 per month for all elderly aged 60 and above Current petroleum subsidy is 1.92% of GDP and social protection spending is 3.8% of GDP The National Council of Senior Citizens Organization (NASCOM) advocates for a universal social pension Universal Social Pension: cash income to all elderly, regardless of socio- economic status Means-Tested Social Pensions: solely for the poor and are conditional on the level of income (Bantuan Orang Tua (BOT)) BOT expenditure was RM477 million, 38,500 poor elderly costs RM15.4 million Minimum pensions targeted to elderly with lowest retirement incomes Social assistance approach targeting poor households with co-residing elderly Four possible schemes of social pension

Methodology – Objective One Analysis include: Baseline simulation Fiscal cost simulation of social pension under the various schemes: government’s operating expenses as percentage to GDP Financial feasibility C = (B/g) x (ΣPi/P) C is cost B is benefits g is GDP per capita Pi is population eligible for the benefits P is total population Eligibility criteria All elderly aged 60 All elderly aged 65 3 levels of benefits: RM300, RM400 and RM800 Benefits are allowed to increase with GDP

Methodology – Objective Two Analysis include: Baseline simulation Fiscal cost simulation of social pension under the various schemes Poverty reduction estimates Financial feasibility C = (B/g) x (ΣPi/P) Eligibility criteria Two groups of elderly aged 60 and 65 All elderly vs elderly living in poverty Household with co- residing elderly vs. poor household with co-residing elderly Household headed by elderly vs. poor household headed by elderly 3 levels of benefits: RM300, RM400 and RM

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

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 percent and 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 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