Socso Pension-Like Scheme: Is It a Good Idea?

Employers will face more difficulties if the government's plan to create a safety net for private-sector workers through the Social Security Organisation (Socso) is implemented.

According to economists, the proposal's introduction could result in a backlash from disgruntled contributors who will need to stretch their limited salaries.

How the pension-like scheme will affect lower-income groups

Associate Professor Aimi Zulhazmi Abdul Rashid of Universiti Kuala Lumpur's Business School said the scheme's implementation could cause more concern for lower-income groups because more deductions could be imposed.

He said the idea of making Socso contributions after its protection age of 60 is commendable. However, if it is extended similarly to the Employees Provident Fund (EPF), he stated it will undoubtedly be an additional overhead cost for employers and will place them in a more difficult position on the back of a recovering economy.

"Socso coverage stops when employees retire. If we are going to increase the employer-employee Socso contributions beyond the retirement age, will it bring about enhanced social security benefits to workers?

"These are the questions that need to be answered first," he stated.

Aimi added that the scheme's implementation should be combined with an insurance scheme to provide broader and longer-term coverage beyond the retirement age of 60.

According to him, the growing gig workforce, who work on a freelance basis, would be a good pilot group to implement this proposal as they are not under the mandatory EPF Act contribution.

A broader pension reform plan

Professor Geoffrey Williams of Malaysia University of Science and Technology said the scheme could be implemented if a broader pension reform plan was put in place to address the looming pension crisis.

He said that, in theory, it is a very interesting concept, but due to years of underfunding and recent EPF withdrawals, it should be part of a broader pension system reform.

According to Williams, the EPF estimates that 73% of its members have insufficient pension savings to date, while 87% of Malaysia's working-age population has insufficient savings, including those who are not in the labour force and those who have irregular savings over time.

Following that, he stated that the introduction of a new "superfund" that combines other funds would be more logical to replace the nation's complex system of welfare payments.

Williams stated that it is critical to design a new system, but Socso only had RM31.4 billion in assets in 2020, which is insufficient. 

"Combining this with other sources such as Kumpulan Wang Persaraan Diperbadankan, or KWAP, (RM159 billion), the Armed Forces Fund Board (RM9.8 billion), the National Trust Fund (RM19.2 billion) and unclaimed assets of deceased people (RM90 billion) would give a significant starting fund for a Malaysian Superfund of RM309.4 billion," he said.

He added that it would make more sense as it can become a multi-service system for health, disability, industrial injury, unemployment, and pension cover.

He went on to say that a 5% annual return would be enough to provide a monthly pension of just under RM2,000 for those in the B40 category.

"This would be a much better solution than Perkeso going alone into the pensions market," he said.

Better campaigns needed

Meanwhile, Putra Business School economist Dr Ahmed Razman Abdul Latiff stated that better campaigns and encouragement were required to increase participation in private retirement schemes (PRS).

He said that given the current economic climate, private workers would be irritated if they are asked to contribute more to Socso, even if it will benefit them in the long run.

"One of the reasons is because we already have an alternative for private workers like PRS that allows them to benefit from monthly pensions.

"Hence, continuous efforts in terms of knowledge and awareness are needed to encourage them to contribute more," he said, adding that additional employer support, such as shared contributions such as EPF, was required.

Regarding health coverage, Razman added that the scheme should give private workers the option of paying a higher premium in exchange for more comprehensive coverage.

"This is as the government has provided assistance related to insurance schemes such as the Perlindungan Tenang under the 'Bantuan Keluarga Tenang' financial aid," he explained.

Human Resources Minister Datuk Seri M. Saravanan announced yesterday that a proposal for a social safety net to be established through Perkeso for private sector workers over the age of 60 had been received.

He had stated that the existing contribution scheme could be converted into a pension-like scheme to provide a social safety net for private workers.

Saravanan went on to say that the government had held 14 extensive engagement sessions since last month to gather feedback from stakeholders ahead of the second reading of the Trade Unions (Amendment) Bill 2022, which is set to be tabled in Dewan Rakyat next month.

Source: New Straits Times