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Malaysia: Weighing the Tradeoffs between Social Pensions and
Social Assistance
Mark Dorfman
The World Bank
Symposium on Social Pensions
vs. Social Assistance
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
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 AgeDependencyRate
Age60/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.
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
Slide 5 April 3, 2013
3a. Most work well past retirement age
Source: HIS 2009.
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.
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.
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.
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%)
Slide 10 April 3, 2013
4d. But the risk of poverty increases as men and women get older
Source: HIS 2009.
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
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%)
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)
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.
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