FACULTY OF COMPUTER AND MATHEMATICAL SCIENCES
INTRODUCTION TO ACTUARIAL SCIENCE (ASC302)
CASE STUDY: IMPACT OF INCREASING RETIREMENT AGE ON SAVINGS
FACTOR: AN EMPIRICAL STUDY FOR GOVERNMENT WORKERS IN MALAYSIA
NAME: ALIMAHTUN SA’DIAH BINTI ZAINAL (2023879152)
GROUP: CDCS1124B
PREPARED FOR:
MR. AHMAD NUR AZAM BIN MD AHMAD RIDZUAN
TABLE OF CONTENTS
ITEM
PAGE
INTRODUCTION
3
POSITIVE AND NEGATIVE IMPACTS ON
RETIREMENT
AGE TOWARDS GOVERNMENT WORKERS
THE
FINANCIAL
AND
SAVINGS
RISK
INCREMENT
4
TOWARDS
6
GOVERNMENT WORKERS
RECOMMENDATIONS FOR THE GOVERNMENT
9
CONCLUSION
10
REFERENCES
11
2
1.0 INTRODUCTION
Malaysia is currently facing an aging population and retirement savings inadequacy.
Statistics show that over half of Employees Provident Fund (EPF) members under the
age of 55 hold less than RM10,000 in savings (Ministry of Finance, 2023). Additionally,
studies show that only 4% of Malaysians could afford retirement, according to the
Employees Provident Fund (EPF) calculations from the previous year (New Straits
Times, 2024).
Malaysia’s retirement system, primarily based on EPF and government
pensions, is under pressure due to low individual savings and an aging demographic.
Many government employees face insufficient savings to support themselves postretirement. By extending the retirement age from 60 to 65 offers a great opportunity to
workers to build stronger retirement savings (FMT Media, 2025).
However, this policy shift carries both advantages and disadvantages. This
report explores the impact of increasing the retirement age on government workers,
assesses the financial and savings risks, and provides recommendations for the
government.
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2.0 POSITIVE AND NEGATIVE IMPACTS ON INCREMENT RETIREMENT AGE
TOWARDS GOVERNMENT WORKERS
The decision to raise the retirement age has significant implications for government
workers. Even though the extension allows for longer income-earning years and
potentially higher retirement savings, it also poses challenges such as reduced job
opportunities for younger entrants and concerns over declining work performance due
to age-related limitations. By understands both positive and negative impacts is
important to evaluate whether the policy shift aligns with the nation’s long-term
socioeconomic goals or not.
2.1 POSITIVE IMPACTS ON INCREMENT RETIREMENT AGE TOWARDS
GOVERNMENT WORKERS
I.
Longer Time to Accumulate Savings
By extending the retirement age, government workers have more time to contribute
to their retirement funds. For example, the Employees Provident Fund (EPF) or
pension schemes. This is especially important considering that many Malaysians
have insufficient savings for retirement. The additional working years allow
employees to rebuild or grow their financial reserves, particularly after recent
events like the COVID-19 pandemic, during which many individuals withdrew from
their EPF accounts. This helps reduce the risk of outliving one’s savings postretirement.
II.
Delayed Pension Payouts
Raising the retirement age postpones the need for the government to start paying
out pension benefits. This delay can help ease the financial burden on the public
pension system in the short term, especially as Malaysia’s population ages and the
number of retirees increases. The government can retain funds longer, giving them
more time to strategize for long-term pension sustainability. Therefore, by increase
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retirement age allows government workers to have better financial planning and
smoother cash flow management.
III.
Better Financial Security Post-Retirement
With more years of service, government workers have the chance to secure a
higher pension or retirement savings amount. This extended period of employment
can help mitigate inflation impacts and rising costs of living, especially healthcare
expenses that are more common in old age. Consequently, retirees will be less
dependent on children or social welfare, promoting greater independence and
dignity in retirement.
2.2 NEGATIVE IMPACTS ON INCREMENT RETIREMENT AGE TOWARDS
GOVERNMENT WORKERS
I.
Fewer Opportunities for Younger Workers
One of the biggest criticisms of increasing the retirement age is that it may limit job
opportunities for younger individuals seeking to enter the government workforce. If
older workers stay in their positions longer, fewer vacancies become available for
new graduates, potentially leading to youth unemployment and dissatisfaction. This
bottleneck effect could also impact career progression for younger workers already
in the system, as promotions may be delayed.
II.
Increased Government Expenditure in the Long Term
While increasing the retirement age delays pension payouts in the short run, it may
also lead to higher overall costs in the long term. Longer periods of employment
mean continued salary payments, annual increments, and extended healthcare
and other benefits for older workers. If not properly managed, these rising
expenditures may offset the benefits of delayed retirement, especially if pension
formulas are based on final salary levels.
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III.
Decline in Physical and Cognitive Performance
As employees age, they may experience physical limitations or cognitive decline
that affect their ability to perform tasks efficiently, especially in physically
demanding roles such as enforcement, healthcare, or emergency services.
Without proper job redesign or support systems, older workers might struggle to
meet the requirements of their roles, leading to reduced productivity and potential
safety issues.
3.0 THE FINANCIAL AND SAVINGS RISK TOWARDS GOVERNMENT
WORKERS
Even though raising the retirement age may extend the working life of
government employees, it also exposes them to several financial and savingsrelated risks. These risks, if not properly identified by the government, could
undermine the long-term financial security of public sector retirees and strain
national fiscal resources. This section highlights the key risks under two
categories, which are financial risks and savings risks.
Financial Risks
I.
Rising Government Pension Cost Risk
Extending retirement age means the government will continue disbursing
salaries and accumulating pension liabilities for a longer period. With a larger
share of the public sector workforce aging, Malaysia’s pension expenditure is
projected to increase to RM46.6 billion by 2025 (European Proceedings, 2020).
This put added fiscal pressure on national budgets, especially without reform in
pension structures.
II.
Fiscal Sustainability Concern Risk
Prolonged government employment without systemic reform may lead to
unsustainable pension funding. The Edge Malaysia (2024) emphasizes that
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without shifting to a more balanced pension model, such as defined-contribution
systems, Malaysia's financial sustainability may be under danger.
.
Figure 1: Growing Share of Emoluments and Retirement Charges in
Government Operating Expenditure (2010–2022)
The chart illustrates a rising trend in government spending on emoluments and
retirement charges from 2010 to 2022. Emoluments increased from RM46.7
billion in 2010 to RM86.5 billion in 2022, while retirement charges rose from
RM11.5 billion to RM28.7 billion. In Q1 2022 alone, the federal government
spent RM22 billion on emoluments and RM8.4 billion on pension payments
(The Edge Malaysia, 2022). This growing burden reflects a fiscal risk, as a
larger portion of operating expenditure is allocated to fixed personnel and
pension costs peaking at 52.3% in 2021. Without reform, raising the retirement
age may increase government debt, endanger the long-term sustainability of
the budget, and reduce funding accessible to development projects.
III.
Healthcare and Dependency Cost Risk
Older employees are statistically more prone to chronic illnesses and medical
conditions, resulting in higher healthcare costs. These medical expenses can
become burdensome for both the government and the individual employee (HR
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Asia, 2023). This increases dependency on public healthcare and may require
increased government subsidies.
Savings Risks
I.
EPF Savings Inadequacy Risk
Despite the extension of working years, EPF savings remain a major concern.
According to the Ministry of Finance, the median EPF savings of Malaysians fell by
50% following several rounds of special withdrawals during the COVID-19 pandemic.
This significant drop indicates that even with longer working years, many Malaysians
remain financially unprepared for retirement, prompting the government to discontinue
any further special EPF withdrawals (Ministry of Finance Malaysia, 2023).
II.
Early Withdrawals Impact Risk
The COVID-19 pandemic prompted government policies allowing EPF members to
withdraw early. This resulted in a massive RM145 billion reductions in total savings
(Malay Mail, 2023). Many workers approaching retirement now face depleted
accounts, with limited time left to rebuild.
III.
Inflation and Longevity Risk
Many retirees in Malaysia opt for lump-sum withdrawals upon retirement. Without
financial planning, they risk outliving their savings, particularly as inflation erodes
purchasing power (Pension Policy International, 2022). This raises concerns about the
long-term sustainability of retirement funds.
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4.0 RECOMMENDATIONS FOR THE GOVERNMENT
The following recommendations aim to ensure that any increase in retirement age is
implemented effectively, considering the diverse needs of older employees, the
aspirations of younger workers, and the long-term sustainability of Malaysia’s public
sector and social protection systems.
I.
Implement Flexible Retirement Options
The government should introduce phased or flexible retirement schemes, allowing
workers to choose when to retire within a certain age range. For example, choose age
between 60 to 65. This would accommodate both employees who wish to work longer
and those who prefer to retire earlier due to health or personal reasons. It also eases
job market pressure by gradually transitioning older employees out of full-time roles.
II.
Create Role Redesign and Supportive Work Environments
Older workers may experience physical or cognitive limitations as they age. To ensure
their productivity, job scopes should be redesigned to suit their capabilities. Age-friendly
work environments, ergonomic tools, and reduced physical duties can extend work
ability and reduce health-related absenteeism (HR Asia, 2023).
III.
Enhance Re-skilling and Lifelong Learning Programs
The digital economy demands that even older employees adapt to evolving
technologies. The government should strengthen access to lifelong learning, digital
upskilling, and tailored training for older workers. Initiatives such as e-Pembelajaran
and professional development grants can help older civil servants remain competitive
and productive (The Edge Malaysia, 2024).
IV.
Introduce Generational Workforce Planning
To prevent generational conflict and stagnation in the public sector, ministries and
agencies must adopt strategic succession planning. Creating structured mentorship
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programs, targeted recruitment, and opportunities for younger workers can promote
balance
and
ensure
intergenerational
knowledge
transfer
(Pension
Policy
International, 2022).
5.0 CONCLUSION
In conclusion, while increasing the retirement age from 60 to 65 can give government
workers more time to save money, the issue of low savings remains. For example,
EPF median savings dropped by 50%, showing that many Malaysians are still not
ready for retirement even with longer working years. At the same time, the government
faces growing pension costs, and younger workers may find it harder to get jobs if
older employees stay longer.
Because of these risks, the government should take careful steps, such as allowing
flexible retirement, making jobs more age-friendly, offering more training for older
workers, and balancing job opportunities across age groups. These actions can help
make sure that raising the retirement age benefits both older and younger government
workers, while also keeping the public finance system sustainable.
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REFERENCES
Official Portal of Ministry of Finance. (2023). MLN EPF Contributors Under 55 Have
Less
Than
RM10,000
In
Savings.
Ministry
of
Finance.
https://www.mof.gov.my/portal/en/news/press-citations/6-3-mln-epf-contributorsunder-55-have-less-than-rm10-000-in-savings
New Straits Time. (2024). Poverty after retirement?. New Straits
https://www.nst.com.my/business/corporate/2024/01/996049/povertyafter%C2%A0retirement
Times.
FMT Media. (2025). Malaysia’s golden opportunity: why 65 is the new 60 for
retirement.
Free
Malaysia
Today.
https://www.freemalaysiatoday.com/category/opinion/2025/05/27/malaysias-goldenopportunity-why-65-is-the-new-60-for-retirement
European Proceedings. (2020). Analysis of Public Pension System in Malaysia.
European
Proceedings
of
Social
and
Behavioural
Sciences.
https://www.europeanproceedings.com/article/10.15405/epsbs.2020.12.05.63
The Edge Malaysia. (2024). Retirement
https://theedgemalaysia.com/node/663623
Planning
and
Pension
Outlook.
HR Asia. (2023). Experts in Malaysia believe raising the retirement age will address
low retirement savings. https://hr.asia/top-news/malaysia/experts-in-malaysia-believeraising-the-retirement-age-will-address-low-retirement-savings/
International Monetary Fund (IMF). (2024). Malaysia: 2024 Article IV ConsultationPress Release; Staff Report; and Statement by the Executive Director for Malaysia.
https://www.elibrary.imf.org/view/journals/002/2024/073/article-A001-en.xml
Ministry of Finance Malaysia. (2023). Median EPF savings of all Malaysians down 50
pct, that’s why no more special withdrawals allowed — Ahmad Maslan.
https://www.mof.gov.my/portal/en/news/press-citations/median-epf-savings-of-allmalaysians-down-50-pct-that-s-why-no-more-special-withdrawals-allowed-ahmadmaslan
Malay Mail. (2023). Is ageing Malaysia facing retirement time bomb with insufficient
EPF
savings?
https://www.malaymail.com/news/malaysia/2023/10/29/report-isageing-malaysia-facing-retirement-time-bomb-with-insufficient-epf-savings/99010
Pension Policy International. (2022). Concerns Over Raising the Retirement Age.
https://www.pensionpolicyinternational.com/concerns-over-raising-the-retirementage/
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