Malaysia Faces Calls to Raise Retirement Age to 65 as Pension Deficits Grow

3 min readOct 17, 20265:37 AM

In this article (8)

Pension advisers and economists in Kuala Lumpur are pushing the government to raise Malaysia’s mandatory retirement age from 60 to 65 through phased adjustments. The current statutory threshold leaves millions of workers exiting the formal labor force with inadequate savings to cover longer lifespans.

Official data from the Department of Statistics Malaysia released on September 30 shows life expectancy for a newborn in 2026 reached 75.5 years, while residents reaching age 60 are projected to live an additional 20.2 years to 80.2. A retirement age set at 60 requires workers to fund more than two decades of living expenses on savings accumulated over short careers.

The Proposed Timeline for Phased Retirement

William Price, chief executive of consultancy D3P Global Pension Consulting, presented a transition framework at the Employees Provident Fund International Social Wellbeing Conference 2026 in Kuala Lumpur. Under his proposal, authorities would add three months of working life for every calendar year, reaching a statutory retirement age of 65 by 2040 without forcing abrupt extensions on staff near departure.

A worker aged 40 today would retire at 65 under the schedule, while a 50-year-old would work until 62 and a half. Employees aged 59 would take on an additional three months, retiring at 60 years and three months. Price suggested exemptions for manual laborers and low-income staff who entered the formal workforce at age 16, allowing early exit after completing 40 to 45 contribution years.

Rajen Devadason, a licensed financial planner speaking at the same conference, proposed an accelerated track to lift the threshold by one year every two years. His plan targets a retirement age of 65 by 2035 and 70 by 2050 to keep pace with demographic shifts.

Depleted Balances at the State Pension Fund

The push to extend working careers coincides with severe savings shortfalls inside the Employees Provident Fund, which covers more than 18 million members. Figures submitted to parliament reveal that as of May 31, only 38.3 percent of active formal-sector members aged 18 to 60 had accumulated the basic savings benchmark of RM390,000. That baseline is designed to yield a monthly drawdown of RM1,625 over a 20-year retirement.

“Consumer spending patterns will shift as older cohorts continue earning regular paychecks into their mid-sixties rather than cutting household budgets at 60.”

Former EPF chief executive Shahril Ridza Ridzuan noted at the conference that low baseline wages prevent households from building assets even when statutory contribution rates remain elevated. Beyond the basic benchmark, the EPF defines adequate savings at RM650,000 and enhanced savings at RM1.3 million, levels out of reach for the vast majority of private sector staff.

Retaining older staff alters payroll dynamics across retail and service chains that rely on entry-level wages. Companies facing persistent labor shortages in store operations, logistics, and customer support stand to gain experienced personnel, provided contracts offer flexible scheduling such as three-day work weeks.

Operating Adjustments for Employers and Retailers

Consumer spending patterns will shift as older cohorts continue earning regular paychecks into their mid-sixties rather than cutting household budgets at 60. Keeping older workers economically active protects discretionary demand across urban retail centers, dining, and healthcare services that depend on steady domestic consumption.

The structural risk sits in commercial staffing models and medical insurance costs. Retailers and hospitality groups must restructure compensation from seniority-based pay scales to productivity metrics, ensuring higher minimum ages do not compress hiring budgets for younger entry-level workers.

Previous statutory changes in Malaysia established the Minimum Retirement Age Act in 2012, which lifted the private-sector retirement baseline from 55 to 60 when it took effect in 2013. The public sector matched that 60-year ceiling, but demographic pressures have intensified as Malaysia transitions toward an aged society status projected by the World Bank.

Policymakers must now weigh draft amendments to employment statutes against public resistance to delayed access to pension funds. The primary metric to track is whether the human resources ministry tables formal legislation to decouple EPF withdrawal windows from mandatory retirement milestones ahead of the next parliamentary sitting.

AdvertisementAdvertise with usMobile 320×100

What this means

The proposed increase in Malaysia's retirement age, potentially reaching 65 by 2040, provides a pragmatic solution to the Employees Provident Fund's severe savings shortfalls, where only 38.3 percent of active members met the basic RM390,000 benchmark. For retail and hospitality, this policy change creates a pool of experienced workers, a significant advantage in an industry facing labour shortages, without forcing abrupt exits on staff near departure. However, it will pressure companies to transition from seniority-based pay to productivity-driven compensation, unlike the 2012 Minimum Retirement Age Act which simply lifted the baseline from 55 to 60. The primary risk lies in managing higher minimum ages without compressing budgets for entry-level hiring. Watch for the human resources ministry to table formal legislation on EPF withdrawal windows.

Rajiv Menon

Questions & Answers

What is the primary reason for proposals to raise Malaysia's retirement age?

Pension advisers and economists are pushing for a higher retirement age because many workers leave the formal labour force at 60 with insufficient savings. They need to cover living expenses for longer lifespans, as official data projects residents reaching 60 will live an additional 20.2 years.

What proportion of active formal-sector members currently meet the basic savings benchmark for retirement?

Figures submitted to parliament show that only 38.3 percent of active formal-sector members aged 18 to 60 had accumulated the basic savings benchmark of RM390,000 as of May 31. This amount is designed for a monthly drawdown of RM1,625 over 20 years.

How would William Price's proposal phase in the new retirement age?

William Price proposed adding three months of working life for every calendar year, aiming to reach a statutory retirement age of 65 by 2040. This approach avoids abrupt extensions, meaning a 59-year-old would retire at 60 years and three months, for instance.

What benefits might businesses see if the retirement age is raised?

Companies facing persistent labour shortages in areas like store operations, logistics, and customer support could gain experienced personnel. Also, continued employment of older cohorts could protect discretionary consumer demand across various retail and service sectors.

Reader pulse

Is raising the retirement age a smart move?

23,838 votes so far