Page 70 - AEI Insights 2019 - Vol. 5, Issue 1

AEI Insights, Vol 5, Issue 1, 2019

old before getting rich is one the biggest medium-term structural challenges for developing
countries in Asia and other parts of the world. The main reason why middle-income countries
are concerned about this is that it might inhibit their ability to join the group of high-income
developed countries (Yen Nee Lee 2017).

Compared with other countries in Asia and the rest of the world, Malaysia and Indonesia will
still have relatively young populations in 2040. Therefore Deloitte Malaysia risk advisory
leader Cheryl Khor stated that “compared to a number of nations, the impact of ageing on
Malaysia’s economic growth is relatively gentle and will not really be felt until the 2050s. Our
economy will avoid many of the more challenging downsides of population ageing for some
time yet, although those challenges will eventually arrive here too” (Quoted in: Dhesi 2017).

The Malaysian Employers Federation (MEF) commented that a smaller manpower pool might
not be the biggest problem in a country with an ageing population because industries would
opt for increased automation. “The types of jobs needed in the future won’t be labour
intensive,” said MEF executive director Shamsuddin Bardan (Quoted in: Augustin 2017).
One of the socio-political challenges which, however, most probably will affect both countries
is the financial aspect of ageing. If the Indonesian and Malaysian population continue to age,
the proportion of elderly dependents, who are older than 65 years will increase. Accordingly,
the two governments will have to address this challenge through their fiscal policy, including
the provision of spending on health care. Both national governments need to be proactive in
anticipating the elderly population. However, finance pressures and human capital challenges
(Sumra 2016) will most probably emerge.
Both countries so far have not yet sufficient welfare state capacities in terms of pensions.
Indonesia so far has not yet developed a general pension system for old people. Except for
public servants including the staff of police and army, who receive a modest state pension, the
care for old people is generally regarded as a family affair. In recent years, however, the
government started the first steps of a welfare state program including a mandatory universal
pension program for all citizens. The Social Security Administration Body for Employment
(BPJS Ketenagakerjaan) is responsible for dealing with the policy implementation of this
ambitious government program. It is yet difficult to predict whether BPJS will be successful or
not.
Malaysia has a pension scheme called EPF (Employee Provident Fund). The fund is managed
by the national Ministry of Finance and both employers (12% of payroll) and employees (11%
of payroll) must contribute to the fund. At the age of 60, any person paying into that fund will
get a monthly pension after retirement. However, this amount is seen as very low. There are
already proposals to raise the pension age from 60 to 65. According to Tunku Alizakri Raja
Muhammad Alias, deputy chief executive officer of EPF, Malaysia will be missing out if the
country does not increase the age of retirement from 60 to 65 years, as, according to him, many
elderly people can still work and offer their skills in the labour market. He proposed that elderly
people can be put into industries such as consultancy, childcare and coaching (Nori 2017).

Two other aspects of population change will influence both countries quite significantly. One
is rapid urbanisation. In both countries the population changed from a rather rural one to a very
urbanized one within only 50 years. The growing urbanisation raises new challenges for
political decision-makers. Currently, Malaysian and even more Indonesian cities are already
plagued with problems such as air pollution, smog, noise, limited space and lack of
infrastructure. A substantial urban population rise, especially among the urban poor, will
compound these problems.

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