Should Malaysia Expand Its Social Pension? : Global Evidence, Design Issues and Options

Overview & Synopsis

The rapid expansion of social pensions in emerging economies over recent decades has been one of the defining features of global social assistance policy. This paper aims to assess the case for a significant expansion of social pension coverage in Malaysia in light of global and Malaysian experience. It first defines social pensions and their diverse objectives. It then looks at global patterns of social pension coverage, adequacy, and spending, highlighting the diverse design trade-offs taken by different countries, including Malaysia. A key takeaway is that the umbrella term social pension encompasses a diverse set of programs where design differences are as important as common features. Following the global benchmarking, there is a discussion of the global evidence on the impacts of social pensions on a range of social indicators, including poverty, health and well-being, labor market behavior, and indirect effects on non-beneficiary household members. It then discusses specific design issues that need to be taken into account when considering expansion of social pensions. This is followed by analysis of the potential impacts on inequality and poverty in Malaysia of different social pension reform scenarios, presenting evidence of their potential positive distributional impacts. The paper concludes with suggestions for reforms of Malaysia’s social pension. Based on both Malaysian and global evidence, the paper argues that there is a strong case for significant expansion of the social pension for older Malaysians. At the same time, it argues that any expansion needs to be done with careful consideration of design features to balance the potential positive welfare and equity impacts with fiscal, incentive, and other factors, in order to achieve a desirable balancing of trade-offs.