Social insurance

Literature on social protection in Malaysia usually emphasizes its social insurance policies, for a good reason. Social protection expenditure in Malaysia is mostly (93%) spent on social insurance, mostly on retirement benefits, either on the government pension scheme or the private Employees Provident Fund (ADB, 2013). Similar to other economies in the Asia-Pacific, social insurance reaches only a small fraction of its population, about 1 million beneficiaries out of a total population of about 28 million in 2009.

For social insurance, the main schemes are covered briefly as follows. For the sake of readability, most of the content in this section is compiled from Sharma (2012), Saidatulakmal (2010) and Ragayah et al. (2002).

Employees Provident Fund (EPF)

The Employees Provident Fund (EPF) is the largest provident fund in Malaysia, covered by the EPF Act (1991), and previously EPF Ordinance 1951. It is a compulsory savings scheme covering all private sector employees and certain employees in the public sector who have not been confirmed and do not qualify for the pension scheme; self-employed persons can participate at a voluntary basis. The EPF is mostly intended as a retirement fund; employees contribute 11%

of their monthly salary while employers contribute 12-13%. All funds can be withdrawn at age 55, though some portions of the fund can be withdrawn before that for approved purposes, such as education, certain critical illnesses, or buying a house. The full sum can also be withdrawn if individuals pass away (withdrawal by their dependents), leave for permanent residency outside of the economy or are incapacitated.

Civil service pension

The public sector, covering federal, state, statutory bodies and municipal authorities, is the largest employer in Malaysia, with 1.3 million employees (ADB, 2013). The civil service pension is a non-contributory pension scheme for civil servants, providing benefits in the event of employment injury, disability, superannuation or gratuity payment upon retirement, and dependents’ pension in the event of death while in service and death after retirement. The

government allocates 17.5 per cent of a civil servant’s salary into a pension trust fund (KWAP) every month for her retirement usage. The scheme is funded by taxpayers.

The Armed Forces Fund (Lembaga Tabung Angkatan Tentera, or LTAT)

The Armed Forces Fund (LTAT) provides retirement and other benefits to members of the other ranks in the armed forces (all military personnel below commissioned officers in rank, including warrant officers, non-commissioned officers, and privates), a voluntary savings scheme for officers and Mobilized Members of the Volunteer Forces in the service, and retraining for the retiring and retired personnel of the armed forces. For members of the other ranks, the superannuation system works similarly to the EPF whereby the employer (the government) and employee both contribute to the fund. Under this scheme, the members are required to contribute 10% of their monthly salary to LTAT, with the government contributing 15%. For the voluntary scheme, the contributions are a minimum of RM 25 with a maximum of RM1,000 monthly.

Contributors to this system will receive annual dividends, tax deductions from their contributions, and death and disability benefits for the dependents of contributors who pass away while being in service, among other benefits.

Employment Injury Insurance and Invalid Pension Scheme

Employment injury insurance and invalidity pensions are covered within the same social insurance system in the private sector, under the Employees’ Social Security Act 1969. The social insurance system is co-financed by employees and employers in the private sector, administered by the Social Security Organisation (SOCSO). The first scheme provides protection for employees who suffer from work-related injuries, illnesses or accidents; protection provided includes medical benefit, temporary disability benefit, permanent disability benefit, dependent’s benefit, death benefit, and rehabilitation benefit. The Invalidity Pension Scheme provides coverage against invalidity or death due to any cause.

Employer’s Liability Scheme

The Employer’s Liability Scheme covers mainly two types of benefits: 1) employment injury compensation under the Workmen’s Compensation Act 1952, and 2) sickness, maternity and retrenchment benefits under the Employment Act 1955. These benefits are under the responsibility of the employers in the private sector, enforced by the Labour Department.

The Workman’s Compensation Act 1952 applies to all Malaysian citizens not covered under the Employee’s Social Security Act 1969 as well as all foreign workers. A special scheme, enacted under the Foreign Workers Compensation Scheme (Insurance) Regulation 1996, provides coverage to all foreign workers against the risk of work accidents and death or permanent disability of any cause. The employer pays for the insurance coverage provided by private insurance companies. The Employment Act 1955 is the main legislation that outlines the rights of

employees that enter into contracts of service with private sector employers. It covers employees earning less than RM2,000 but all private sector employees are entitled to these basic benefits regardless of how much they earn. The employer is obliged to provide the employees with:

1. Sickness benefits equal to 8 days of fully paid leave certified by a doctor if the employee has less than 2 years of service, 12 days for 2-5 years, and 16 days for service exceeding 5 years.

2. Maternity benefits equal to 60 days of paid maternity leave to qualified female employees, for births live or still, after a gestation period of 22 weeks.

3. Retrenchment benefits depending on the length of the employee’s service, equal to 10 days of wages per year of service for service less than 2 years, 15 days per year for service 2 to 5 years, and 20 days per year for service exceeding 5 years.

Employment Insurance Scheme (in last stages of proposal)

Although employees are entitled to severance pay upon being retrenched, the system relies on the employers to pay, which may be problematic when businesses close down or when enforcement is weak. An unemployment insurance that is a contributory scheme by both employers and working employees would serve as a better safety net, and retrenched employees can also get access to retraining programs organized by the government to facilitate their return to the workforce.

From 2009, the government, in partnership with the International Labour Organisation (ILO), embarked on a feasibility study on a Framework for Relief Fund for Loss of Employment in Malaysia, which was agreed upon by the government with an allocation of RM80 million (under the 10^th Malaysia Plan) within the period of 2010 to 2012. However, the fund was not disbursed as there was no consensus among the stakeholders on the contributions from employers and employees to sustain the scheme. The debate continued until 2012, when the government announced that it would shelve the plan for the time being until the minimum wage system was enforced, due to strong protests from the business sector (The Malaysian Insider, 11 June 2012).

In the Prime Minister’s Budget 2015 speech in October 2014, the establishment of an Employment Insurance Scheme (EIS) was announced to give temporary financial assistance and job training for retrenched workers, which is essentially what the unemployment insurance would do, but with a new name. As of September 2015, the status of the scheme is still undefined, with the Deputy Minister of Human Resources stating that the government would announce its decision very soon regarding the EIS, in light of worldwide economic turbulences that might lead to an increase in dismissal and retrenchment cases, which happened during the economic crises of 1997/1998 and 2008/2009 (The Malaysian Insider, 2 September 2015).