‘Boost pension income through productivity'

The Star

a day ago

WITH rising household debt, stagnant real wages, and a rapidly ageing population, Malaysia faces growing pressure to reform its wage and retirement policies.
Some experts are saying that boosting people's incomes through improved productivity and strenghtening reskilling are also crucial to ensure long-term financial security for Malaysians especially as the country prepares to review its retirement age limits.
Sunway University economist Prof Dr Yeah Kim Leng points out that increasing wages and extending the retirement age are both needed as part of a comprehensive and holistic approach to addressing the multi inter-dependent challenges.
Prof Yeah, who also sits on the Finance Minister's panel of special advisers, says these challenges are posed by population ageing, income inequality, depressed wages and inadequate retirement savings.
He also points out that policy- wise, the increase in wages can be done by reskilling and upskilling workers to add value to their portfolios.
'To ensure the majority of Malaysians are able to achieve post-retirement financial security, boosting income through productivity enhancement and reskilling or upskilling programmes are among the top policy priorities.'
His comments came on the heels of reports highlighting Malaysia's growing household debt and financial insecurity, with many unable to save adequately for retirement.
Recently, former Bank Negara Malaysia governor Tan Sri Muhammad Ibrahim in an interview said Malaysians' real wages have shrunk almost threefold in four decades – he pointed out that based on simple calculations, the starting salary of a university graduate today is only around RM2,000 to RM3,000 a month – his starting salary was RM1,300 a month in 1984, so that's not much of an increase.
At the same time, the government is also reviewing the possibility of raising the retirement age from 60 to 65; it has yet to confirm whether, if this is implemented, there will be a flexible scheme to allow early retirement.
When it comes to structural reforms that can help Malaysians achieve financial security post-retirement, Prof Yeah says such measures must include the need to raise the quality of education at all levels and ensure the curriculum and teaching staff are upgraded continuously.
'Likewise, financial literacy programmes need to be stepped up to equip all Malaysians with adequate financial knowledge and competency to achieve post-retirement financial security.'
AI, automation and productivity
Productivity, and in turn wages, can also be improved with automation, especially as Malaysia advances toward a high-income, digitally integrated economy.
With rising operational costs, including an imminent increase in the national minimum wage, manufacturers are accelerating the adoption of Industry 4.0 technologies to maintain competitiveness and sustainability.
Productivity, and in turn wages, can also be improved with automation, especially as Malaysia advances toward a high-income, digitally integrated economy. — 123rf
According to the Federation of Malaysian Manufacturing (FMM) this shift is not merely reactive but strategic, with nearly half of surveyed companies already embracing automation and smart factory initiatives.
Yet, while digital transformation enhances productivity and aligns with national goals under the New Industrial Master Plan 2030, it also raises questions about wage equity and the future of work.
For FMM president Tan Sri Soh Thian Lai, automation and digital transformation have become crucial strategies for Malaysian manufacturers to adapt to rising labour costs and broader operational challenges.
Through the adoption of smart technologies such as automation, system integration, robotics, IoT (Internet of Things) and data analytics, Soh says companies have significantly enhanced productivity and optimise resource use.
He also refers to the to the FMM Business Conditions Survey 2H2024, in which it finds 44% of member companies have adopted factory automation and Industry 4.0 initiatives.
"The main drivers for this shift are the pursuit of greater operational efficiency and productivity (cited by 60% of respondents) and the need to reduce operating costs (58%), clearly reflecting the industry's strategic focus on sustainable cost-saving and competitiveness-enhancing measures."
Soh tells the Sunday Star that the survey findings also show that System Integration is the most widely adopted Industry 4.0 technology (63%), followed by Cloud Computing and Autonomous Robots (45% each), IoT (43%), and Big Data Analytics (34%).
"These trends highlight an accelerating shift toward digitalisation, automation and connectivity, with manufacturers prioritising smart technologies to future-proof their operations and build resilience."
He points that the digital transformation digital transformation momentum directly aligns with the goals of the New Industrial Master Plan 2030 (NIMP 2030), particularly the Mission-Based Project (MBP) aimed at establishing 3,000 smart factories nationwide.
"In support of this national agenda, FMM is playing an active role in encouraging and assisting manufacturers to embark on the smart factory journey.
"FMM's initiatives include advocating for greater Government support through enhanced tax incentives, Industry 4.0 adoption grants, and workforce upskilling programmes, as well as providing capacity-building programmes, technical advisory services and knowledge-sharing platforms tailored to the needs of manufacturers, especially SMEs (small and medium entrepreneurs)."
But concerns on the implementation of automation and AI over job security remain, especially after it was reported that 300,000 job losses in Malaysia since 2020, particularly in manufacturing and retail.
When asked what policies should be in place to ensure that automation leads to fair wage growth rather than increased job displacement or labor exploitation, Sunway University's economist Professor Dr Yeah Kim Leng says workers are protected under the existing employment acts against unfair dismissal or retrenchment.
"To counter the job displacement effects of AI and automation, job creation, however, will need to keep pace through increases in investment and entrepreneurship in emerging industries and new economic activities.
"There will be rising jobs and skills mismatches that will require re-skilling and upskilling programmes for the affected workers while ensuring the tertiary education institutions are able to supply the relevant skilled graduates to meet the changing industry demand," says Prof Yeah, who also sits on the Finance Minister's panel of special advisers.
Yeah stresses that workplace restructuring and adoption of flexible compensation schemes and best practices in response to technology advancement – particularly the use of artificial intelligence, automation, and communication technology – are still crucial.
'This is to ensure employees are fairly remunerated and have job security that enables them to achieve financial security when they retire," he says.
He adds besides enforcing policies to ensure fair compensation payment for retrenched employees and adequate employment insurance coverage, employers could be incentivised to undertake placement and reskilling programmes before undertaking automation-related retrenchment exercises.
"Tax incentives could also be offered to affected employees to undergo upskilling programmes in collaboration with employers that require trained and experienced staff."
The second phase of the mandatory increase in the minimum wage to RM1,700 for employers with fewer than five workers is set to take full effect in August. There have been concerns raised about this, such as wage compression and even the effectiveness of the minimum wage policy.
In response, Prof Yeah says the minimum wage ensures that no employee receives an income below subsistence or poverty level.
'The minimum wage increase takes into consideration the rise in living costs as well as increases in labour productivity.
'The minimum wage increase will exert upward pressure on salary structures but adjustment varies by individual organisation's compensation structure, practices, and prevailing industry salary wage trends.
'With the rise in salaries, both employer and employee contribution to EPF will increase, resulting in faster accumulation of retirement savings.'
He says although it adds to cost pressures faced by employers and businesses – amid worries from the impending Trump trade tariffs, expansion of the sales and service tax, and petrol subsidy rationalisation – only those that are unable to enhance productivity and profits will be negatively impacted.
He notes that, 'with an increase in disposable income through wage increases, there will be stronger household spending that will in turn benefit businesses, although not equally across the various types of industries.'