While longer life is often seen in a positive light, there is also the downside.

Firstly, it will be a difficult transition. Economic pressure, such as higher cost of living coupled with insufficient retirement funds, will push workers to spend more years in the workforce, or even force retirees to return to work.

For the government, this leads to another problem — older workers are naturally more susceptible to illness, injury, and work-related ailments, putting additional pressure on the healthcare system.

As of 2023, two million adults have been recorded managing various non-communicable diseases such as diabetes, hypertension, high cholesterol, and obesity, putting a strain on existing social security and healthcare systems. The figure is expected to rise over time.

Combined with the Malaysian practice of lump sum EPF withdrawal upon retirement, there are signs that the social protection system is unsustainable in the long term, making reforms all the more urgent.

All-time high number of Perkeso claims

According to a 2025 study by Universiti Teknologi Mara (UiTM), Perkeso received 383,101 submissions for claims in 2024. That was nearly six times the number recorded 25 years ago.

The surge in claims was partly driven by the move to expand coverage to self-employed and domestic workers, along with heightened public awareness of their entitlement.

As more Malaysians actively claim benefits, the system faces challenges in maintaining long-term financial sustainability, especially since the average age of contributors continues to rise.

Academic Mohd Zaki Awang Chek said while the increase in claims showed that Perkeso’s role as a vital safety net is functioning, the sharp upward trend signals a critical shift in Malaysia’s social protection landscape.

“Extended working life is directly associated with higher Perkeso claim frequencies, particularly for employment permanent injury and invalidity benefits,” the associate professor of the faculty of computer and mathematical sciences at UiTM told FMT.

With little savings after retirement, many have been pushed to make invalidity claims as a financial recourse, turning Perkeso’s disability fund into a last resort pension.

This places immense actuarial strain on a system designed for social insurance, not retirement, further draining social insurance funds faster than anticipated.

Experts believe the introduction of a hybrid pension model will help by providing a guaranteed “pension floor”, ensuring medical benefits are reserved for the genuinely ill and injured.

The International Labour Organization defines “pension floor” as a set of social security guarantees to ensure all citizens above a specific age have access to basic income security.

How a hybrid pension model can address this

A hybrid pension model combines private savings in a pension scheme such as EPF with a publicly contributed and pooled monthly pension floor. This system ensures that even if personal savings run out, a monthly payment to cover basic living costs is still guaranteed, putting in place a shared national safety net, which will protect everyone.

Malaysia’s current social security relies on two mandatory pillars — EPF, a defined-contribution model for retirement savings, and Perkeso, which provides social insurance against workplace injuries and disabilities.

The reliance on EPF, especially in the private sector, has created a culture of strong individual accountability for retirement, leaving many without a guaranteed, inflation- adjusted, lifelong income.

A hybrid pension model adds a defined-benefit layer that provides predictable regular income for life, usually in monthly payments, which may be adjusted for inflation.

According to deputy director of research at Khazanah Research Institute Christopher Choong, Malaysia cannot avoid the transition towards a solidarity-based risk-sharing model that is institutionally more robust, a view shared by Zaki.

Zaki said a hybrid system introducing a defined-benefit layer for private sector workers is now a necessity given the need to avert a future crisis of old-age poverty.

However, making the transition from an individualistic nature that defines the EPF now to a scheme that is more collectivist, may meet some resistance.

It is like family members chipping in to pool funds together to pay for their elders’ care, but in a wider national context, Choong said.

“The idea of moving towards some kind of solidarity-based risk-sharing model is actually not very far off from what the communities are currently doing on an informal basis. Now it is a matter of extending this network beyond immediate family members to the entire Malaysian society,” he added.

Choong said that if ageing population and depleted savings are viewed as national crises, it would enable the government to step in, as it did during the Covid-19 pandemic.

“The question confronting us today is whether ageing and old age retirement is a crisis already happening or if it is a crisis that is waiting to happen.

“The fact that we are having these considerations of different models, points to the fact that the current EPF-focused system is not adequate,” he added.