Malaysia As An Aged Nation An Economist S Case For Working Longer

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MALAYSIA is getting older faster than it is getting richer. By 2034 the country will cross the threshold into an “aged society”, with more than 14% of citizens over 65.
The labour force is already shrinking, pension funds are under strain, and millions of workers arrive at 60 with savings too thin to last two more decades of life.
Against this backdrop the government is studying a rise in the mandatory retirement age from 60 to 65. The idea has provoked loud objections mostly from the young, who fear blocked careers, and from older workers, who say they are tired.
Yet when viewed through the cold lens of economics, the objections look less like iron laws and more like solvable design problems.
The most common worry is that keeping older workers on the job must crowd out the young. This is the famous lump-of-labour fallacy: the mistaken belief that an economy contains a fixed number of jobs, so one extra years from seniors automatically mean fewer openings for graduates. Decades of research across Europe, East Asia, and now in Malaysia itself show the opposite.
Older workers spend money, pay taxes, mentor juniors, and keep firms productive; all of these effects create demand that translates into more jobs, not fewer. A 2025 World Bank study using Malaysian data found a positive correlation between employment rates of people over 55 and employment rates of people under 30.
In plain language, countries that let experienced workers stay longer do not condemn their children to unemployment; they often give them better wages and faster promotions.
A second fear is financial: employers, especially small ones, will groan under higher wages and medical claims for ageing staff.
However, experience says otherwise. Older workers already know the firm’s systems; replacing them with fresh graduates is expensive in recruitment, training, and lost know-how.
(Image: Freepik)Five extra years of contributions also transform retirement savings. Malaysia’s Employees Provident Fund routinely reports that the median member reaches 60 with less than RM10,000 put aside.
Working to 65 typically adds 25–30% to the final pot which is enough to lift hundreds of thousands of future pensioners out of poverty and reduce the fiscal pressure on taxpayers who would otherwise subsidise them.
Health costs do rise with age, but productivity does not collapse at any fixed birthday. Many 60-year-olds today are healthier and better educated than 50-year-olds were a generation ago.
The third objection is that some jobs are simply too physically punishing to perform at 65 is the easiest to fix and the hardest to dismiss. No serious proposal insists that construction workers or hospital orderlies must toil until they drop.
Singapore, which has already moved its retirement age to 63 and is heading to 65, solved this with “re-employment” contracts: after the official age, firms must offer a suitable job or a payout.
Malaysia already uses similar contracts for civil servants; extending the model to the private sector would protect heavy-labour workers while keeping knowledge workers in the labour force.
Economists care about incentives. Forcing everyone out at 60 when life expectancy is 76 and rising creates a perverse reward: save nothing, retire early, and live on handouts. Raising the age, done gradually and flexibly, aligns incentives the other way: work longer, save more, retire with dignity.
The evidence from Japan, South Korea, Germany, and now Singapore is remarkably consistent: labour-force participation among the 60–64 age group rises, government pension costs fall, and GDP per person grows faster than it otherwise would.
Malaysia does not need to copy any one country, but it cannot afford to ignore all of them. A well-designed increase to 65 if phased in over a decade, with sector-specific pathways and strong re-employment obligations, would lengthen working lives, thicken retirement savings, and ease the coming demographic squeeze.
The alternative is to leave the current system unchanged and watch the economy slowly run out of workers while the pension system runs out of money. Economics, at its best, is simply the study of trade-offs. In this case the trade-off looks unusually favourable. 
Dr Diana Abdul Wahab is a senior lecturer from the Department of Decision Science, Faculty of Business and Economics, Universiti Malaya.
The views expressed are solely of the author and do not necessarily reflect those of  MMKtT.
- Focus Malaysia.

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