1. Malaysia: Weighing the Tradeoffs between Social Pensions and
Social Assistance
Mark Dorfman
The World Bank
Symposium on Social Pensions
vs. Social Assistance

2. Slide 2
April 3, 2013
Organization
1. Demographic profile
2. Co-residency
3. Work profile
4. Poverty profile by age & household status
5. Social pensions & social assistance programs
6. Policy options considered

3. Slide 3
April 3, 2013
1. A rapidly aging society
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2010 2015 2020 2025 2030 2035 2040 2045 2050
Old Age
Dependency
Rate
Age
60/Total
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Working Age and Total Population
Working Age Population Total Population
Old Age Ratios
Source: World Population Projections, 2010 revision.

4. Slide 4
April 3, 2013
2. With high co-residence rates
 2/3 of elderly married
 ¾ live with non-elderly working adults
 7% live alone

5. Slide 5
April 3, 2013
3a. Most work well past retirement age
Source: HIS 2009.

6. Slide 6
April 3, 2013
3b. But shift from wage to self employment
All Elderly Men with Income Those Elderly Men with < Median Income
Source: HIS 2009.

7. Slide 7
April 3, 2013
4a. Most households (& those w/elderly) incomes close to PLI threshold – Low
incidence of absolute poverty but much higher vulnerability to poverty
All households Households with elderly
Poverty line close to concentration of income distribution, & sensitive to
assumptions. Potential sensitivity more acute for households with elderly
Source: HIS 2009.

8. Slide 8
April 3, 2013
4b. Poverty profile acc. to household composition
Shares of poverty
76% in working age and
children
20% in ‘three generation
households’
Under 1% in elderly only
households
Poverty Rates
Source: HIS 2009.

9. Slide 9
April 3, 2013
4c. Poverty incidence lower amongst elderly according to three measures
• Elderly Headed Households
– 3.0% (non-elderly headed 4.0%)
• Households that Have Elderly Members
– 3.5% (without elderly 3.9%)
• Elderly Individual Rate
– 4.0% (non-elderly 5.9%)

10. Slide 10
April 3, 2013
4d. But the risk of poverty increases as men and women get older
Source: HIS 2009.

11. Slide 11
April 3, 2013
5a. Each approach has tradeoffs
 Universal Social Pension to individual elderly on a test of age
 High fiscal cost
 Limited targeting efficiency
 Low disincentives for work for individuals and households
 Means-tested Social Pensions to individual elderly on a test of
age and income (or proxy)
 Lower cost
 Better targeted (subject to errors)
 Individual disincentives possible – depending on targeting design
 Social assistance to low income/poor households (all low income)
 Lowest fiscal cost
 Better targeted (subject to errors)
 Highest admin cost (subject to design)
 Individual & household disincentives

12. Slide 12
April 3, 2013
5b. Household composition effects of options
 Potential gains from elderly co-residence?
 Effect on women’s labor supply (childcare)
 Effect on schooling of children
 Income of elderly can help household avoid poverty
 Potential risks to elderly co-residence?
 Household level means-test (social assistance)
 Demonstrate potential effects
 Arithmetic re-estimation of poverty if elderly lived
separately (34% a vs 4%)

13. Slide 13
April 3, 2013
6. Existing social pension & social assistance programs
 Small, weakly targeted social assistance program for the
very poor.
 Small, weakly targeted social pension targeted at
poorest elderly without income support.
 Substantial untargeted consumer subsidies (housing,
food, fuel)

14. Slide 14
April 3, 2013
7a. Policy option considered
1.Strengthen the targeting system
2.Replace untargeted subsidies with household-based social
assistance initially targeting the bottom decile + other
subsidies at bottom 1-4 deciles.
3.Replace categorical targeted social pension with household-
targeted social assistance.
4.Consider benefit supplements for the very old as the
population ages.
and..
Monitor household composition & poverty profile as population
ages + reevaluate with any policy changes to provident fund.

15. Slide 15
April 3, 2013
7b. Considerations in the household-based SA option
 High co-residency (& potential incentive effects of individual
targeting)
 Concern over incentives to work.
 Elderly poverty profile