This article first appeared in The Edge Malaysia Weekly on November 5, 2018 - November 11, 2018

AN ageing population spells lower productivity, which not only affects economic growth but also generally requires higher public expenditure to cater to a higher number of older people in society.

“The longer life expectancy of the population, particularly the pensioners and their dependents, tend to increase pension payments, given the higher number of pensioners. Therefore, the current pension scheme may not be sustainable in the long run as it will pose a larger financial burden to the government’s fiscal position,” according to the Economic Outlook 2019. The cost of federal pension has already tripled in the past decade to just over 10% of government revenue at last count.

“To ensure a sustainable fiscal position in the long turn, the civil service pension scheme could be improved and modernised by introducing the defined-contribution scheme for new recruitments in the civil service,” reads one of the six recommended measures listed in the report to mitigate the negative impact of an ageing population on the economy.

Public pension reform is just one of many challenges the country is faced with as society ages — and the clock is ticking fast. Malaysia will be an “ageing society” by 2020 and only has 20 years to prepare for the transition to an “aged society” by 2040, as defined by the World Health Organisation. More than 2.4 million or 7% of the population will be aged 65 and above by 2020 and the number is projected to rise to 14.5% by 2040.

“Even though Malaysia will face issues of an ageing society by 2020, economic growth is expected to remain stable in the long run as a reduction in fertility rate implies that women will be participating more in the labour market and thus contribute to higher labour productivity and economic growth,” the report adds, citing empirical studies.

Still, there is need to prepare ahead as other studies have found that population ageing tends to lower labour force participation and savings rate, therefore raising concerns about slower economic growth. The latter may in turn translate into lower household income and lower consumption. It is also vital for industries to adopt automation and mechanisation to remain competitive as labour output falls.

Incidentally, raising the female labour participation rate to offset the reduction in the labour force as the population ages is another key measure mentioned in the report. Malaysia has among the lowest rate of female labour force participation in Asean+3 countries. In 2017, it was only 54.5% compared with 80.1% for males. If the gap is reduced by 50%, the labour force could potentially add 1.3 million workers for a total of 16.3 million.

“Therefore, intensifying the implementation of various policies ranging from flexible working arrangements, provision of quality childcare facilities, skills training and entrepreneurship programmes for women will accelerate women participation in the labour force,” says the report.

Apart from public pension reform and raising women labour participation, the four other measures mentioned in the report are:

•     Gradual retirement (older people work fewer hours but remain employed) and re-employment opportunities for post-retirement and aged workers;

•     Improve productivity, including through technology innovations such as robotics to offset demographic pressures on growth;

•     Encourage lifelong learning, where skills upgrading should be promoted across every life cycle to keep people productive; and

•     Creating an elderly-friendly environment to promote the well-being of the aged and allow them to stay independent and actively participate in the community and contribute to nation development.

“The private sector has an important role to play in creating a conducive environment for the elderly”, reads the report, which mentioned the need to increase the availability of aged-care facilities such as elderly-friendly housing schemes, daycare centres, conducive public spaces and transport.

The suggestion for daycare centres for the elderly point to a need to allow the same flexible working arrangements given to those caring for children to be extended to those caring for the aged.

Japan became an aged society in 1994, and Korea reached that milestone this year. Benchmarking against other countries’ best practices will help the government in drafting and formulating comprehensive policies for population ageing.

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