Protection system

The perils of an underdeveloped welfare system

CURRENT statistics show that of Malaysia’s 32.4 million people, 3.9 million (12.4%) are poor, 7.5 million (23.3%) are children, 7.3 million ( 22.8%) live in rural areas and 680,000 (4.2%) are unemployed. These segments of the population are very vulnerable. The social protection system should be further strengthened to meet their needs. Recent disasters such as the pandemic and floods highlight the need to pay greater attention to social protection. These events exposed deep structural flaws in Malaysia’s social protection framework.

Although there are variations from country to country, the term “social protection” generally refers to a framework in which the three pillars of social protection, commonly referred to as the 3Ps – social assistance (to protect) , social insurance (prevent) and active labor market (ALM) programs (promote) – are integrated or, at a minimum, coordinated. These 3Ps aim to ensure that basic needs are met, resilience against poverty is achieved and economic potential is maximized.

Social assurance

Malaysia has, since 1951, laid the foundations of social insurance policies and labor market policies with the Employees Provident Fund (EPF), Social Security Organization (Socso) and the 2001 on the PSMB. These commendable efforts have addressed some of the shortcomings of the Malaysian social system. the landscape of insurance and the labor market. The government’s emphasis over the past decade on private pension schemes (PRS), for example, by creating the Private Pension Administrator (PPA) and introducing tax incentives for PRS and deferred annuity products in 2012, will further strengthen the robustness of social protection.

However, adequacy and coverage are still among the challenges in Malaysia’s social insurance landscape. Public pension liabilities are known to be underfunded, as evidenced by the faster growth in public pension expenditure relative to the growth in tax revenue, i.e. 5% versus 2%. Private pension schemes, on the other hand, provide limited support to address this issue, since less than 3% of the working population has a PRS account. It is of growing concern that 39% of the working population is not covered by a formal pension scheme. While Socso attempted to address this issue with the introduction of Social Security for the Self-Employed (SESS) in 2017, the program remains undersubscribed.

Gaps in social security and insurance could be closed by expanding coverage using a phased-in approach, prioritizing the most urgent need for coverage for the self-employed and workers underemployed. The immediate focus should be on making the Employees Insurance Scheme (EIS) a compulsory contribution for the self-employed, starting by providing cover for specific risk events such as pandemics, natural disasters and/or policy changes (irrelevance). In the long term, the possibility of extending coverage could be further explored to also include loss of earnings events and job training for underemployed workers. In addition, given the high number of informal sector and self-employed workers in Malaysia, equivalent defined contribution incentives – such as those successfully implemented in Latin America – should be explored by the government, as this could potentially incentivize groups to take an interest in PRS.

Active labor market

While the labor market conundrum remains difficult, the government has taken steps in the right direction by coordinating labor-related policies through the creation of Talent Corp in 2011, the introduction of the National Employment Council ( NEC) in 2020 and the development of the long-term national job creation strategic plan in 2021.

However, in order to improve labor mobility in the job search process, several barriers to implementation need to be addressed. The Human Resource Development Fund (HRDF), in its report, said that the process of identifying and analyzing training needs remains weak, particularly with regard to matching industry demand. with the upgrading and retraining programs offered by the government. The fragmentation and duplication of these programs has also resulted in poor coordination between some ministries. The weakness of the periodic review of ALM policies needs to be addressed to ensure that it is consistently guided and aligned with the National Job Creation Strategic Plan and the upcoming 12th Malaysian Plan. Invariably, efforts to strengthen the implementation of ALM policies should revolve around strengthening synergy and coordination between different ministries and agencies.

The development of a unified database for the Malaysian labor market should be explored by the government as there are currently multiple programs run by multiple agencies and ministries. Careful consideration should be given to consolidating all of these programs under one flagship platform and complemented by more granular categorization. Therefore, continuous collaboration and close working relationships between key stakeholders, namely government, industry, course providers and universities, must be maintained to ensure that more structured course offerings and planning complete are achievable.

While Malaysia’s efforts to develop a comprehensive social security system have gained traction in recent years, there is recognition of the need to do more. One of the risks Malaysia currently faces is over-reliance on welfare policies. Although politically popular and relatively easier to implement, over-reliance on welfare would undermine the main goal of poverty eradication. As the country progresses, social protection should go beyond reducing poverty and meeting basic needs. The system should be preventative in nature and enable resilience building, so that all Malaysians, especially the disadvantaged, can enjoy socially consistent and economically inclusive opportunities. – June 21, 2022.

* Wan Najwa Wan Sulaiman reads The Malaysian Insight.