Like many advanced nations, Malaysia is undergoing profound demographic
changes that are bound to have far-reaching economic and social
repercussions in future. A critical feature of future Malaysian society will
be the need to provide economic security to older people. Thus, it is
important that policy makers consider the various options available to meet
this need. While some progress has already been made, including the
introduction of the National Policy for Older Persons in 1995, much remains
to be done. The present paper seeks to contribute to the literature on
demographic policy formulation in Malaysia by considering the
characteristics of potential public pension schemes, that could assist in
providing economic security to older Malaysians. In this paper, we undertake
a conceptual simulation exercise on a subsidized public pension scheme
which embodies an old age subsidy in order to establish how it will affect
intergenerational transfers from child to parent (i.e., gifts), savings and
fertility in an overlapping generation economy model with and without
annuity markets.
Policy makers across the globe have begun tackling the problems posed by
demographic change in earnest, with depopulation now a ubiquitous phenomenon
in much of the developed world. For example, Population Projections for Japan
(1997) has predicted that the Japanese population will decrease at an alarming rate
after peaking in 2007. Similarly, Singapore has reversed its longstanding policy on
birth control and presently actively encourages larger families, especially among the well-educated and more affluent. A particularly alarming feature of demographic
change resides in the ageing population and the economic and social consequences
of an ageing demographic profile.
Scholars in a variety of disciplines have considered the policy problems engendered
by the ageing population. However, three main themes have dominated the efforts of
economists in this area. In the first place, the long-term implications of an imbalance
in supply and demand of labor and its effects on economic growth have been explored.
Secondly, economists have considered the demographic problems derived from the
imbalance between the numbers of old and young people caused by low fertility and
low mortality, further exacerbated by increased longevity. Finally, the financial
security of the elderly has been investigated. However, in this third sphere of research,
much remains to be done. In particular, the question of how pension funds and
longevity affect the economy (i.e., savings, labor markets, retirement age, fertility,
etc.) has not yet been fully explored. For instance, in the case of Malaysia, the
literature on financial security has focused on the Pay As You Go (PAYG) pension
system (see, for example, Razak, 1997 and 1999), but neglected the subject of saving
subsidization. Our paper thus seeks to remedy this neglect. |
