Tell us about the recent developments in the introduction of invalidity and survivor benefits for migrant workers in Malaysia and how ILO has supported these changes.
ILO has long standing cooperation with Malaysia's Social Security Organization, known as PERKESO. In recent years a key element of the work has been in supporting efforts to extend social protection benefits to include migrant workers.
PERKESO manages three schemes: the Employment Injury ('EI') scheme providing benefits and services on workplace accidents; the Employment Insurance scheme providing income replacement on unemployment and the Invalidity and Survivors' ('IS') scheme. With ILO support, coverage of the Employment Injury scheme was extended to foreign workers in 2019. Effective July 2024, the Invalidity and Survivors' scheme has also been extended to include migrant workers.
This is a major advance for social security in Malaysia and will help establish a more inclusive social protection framework that covers all workers, regardless of their nationality, which goes hand in hand with PERKESO's determination towards ensuring 'no one is left behind'.
Why is this extension of coverage to foreign workers so important?
The extension is vital on several levels. Firstly, at an individual and family level, it provides a safety net for migrant workers and their families. If a breadwinner passes away or suffers a disease which reduces their earnings capacity by at least two thirds, they are now covered under PERKESO's invalidity and survivors' benefits schemes. This alleviates the financial burden on their families.
Secondly, the fact that all workers regardless of nationality are treated equally means a level playing field and reduced administrative burden for employers.
Third, at a national level, Malaysia is ageing relatively rapidly with a consequent increasing need for foreign workers and improvements in productivity. Migrant workers play a crucial role in the economy and covering them with this social security scheme enhances human capital and ensures a stable and productive workforce. By including foreign workers in these schemes, Malaysia strengthens its social security system, fostering a more equitable and sustainable economic environment.
What has been the role of the ILO in facilitating these changes?
Our partnership with PERKESO has been instrumental in shaping the policy framework and ensuring that it aligns with international standards. This has helped to build a strong case for the initiative, making it a priority for the government and stakeholders.
The ILO's role has been providing the evidence and policy recommendations needed to support this initiative. The ILO actuarial valuation of the EI and IS schemes assessed the impact of including foreign workers in the former in 2019 and costed extension of coverage to such workers for the latter. The analysis showed that their inclusion in PERKESO schemes was financially beneficial, given their age, sector and gender profiles. With our demographic projections showing the rapid future ageing of the population, we also demonstrated that extending social protection to migrant workers is beneficial for Malaysia's future economic and labour market needs.
How does the new system work, and what are the contributions from employers and workers?
The contributions are split between employers and the workers with each party contributing 0.5 per cent of the worker's salary to the social security system. This contribution is relatively low, making it affordable for both employers and workers. Social security is a very effective risk pooling mechanism and provides coverage that individuals and employers by themselves cannot. The scheme provides a wide range of benefits for workers who are unable to work due to illness or disability including permanent and temporary invalidity as well as survivors' benefits including a widow / widowers' pension and funeral benefits.
Coverage became mandatory on 1 July 2024. However, any delays in contribution payment will be exempt from late payment charges for six months, until December 2024. This period provides ample time and allows employers and workers to adjust to the new system, ensuring a smooth transition.
What challenges do you foresee in implementing these changes?
Implementing these changes does come with certain challenges, primarily ensuring all those that should be covered are actually covered. This requires supporting compliance measures plus targeted information campaigns for both workers and employers. Whilst there are some administrative processes for employers, PERKESO already provides excellent support and companies have already extended coverage for Employment Injury benefits to such workers and can already learn from this experience. There is also a need to ensure public support for these initiatives, as perceptions about providing social benefits to non-citizens can be complex. This is why our evidence-based analysis based on the outcomes of the actuarial valuation are so important as they demonstrate the economic and social benefits of a robust social security system and highlight that their inclusion strengthens PERKESO scheme finances.
Clearly, it is important that once such workers are included, claiming benefits is simple and straightforward. Bilateral and multilateral agreements to ensure payments in the home country of the worker are important supporting frameworks. The ILO continues to partner closely with PERKESO and other stakeholders to support efforts in the administration and management of these benefits, ensuring they are accessible and sustainable. The ILO as a neutral, tripartite organization will continue to facilitate dialogue and consensus-building among government, employers, and workers' representatives. Through these efforts, we aim to create a social protection framework that is fair, inclusive, and beneficial for all parties involved.
What has been the response from the Malaysian government and employers to these changes?
The Malaysian government recognises the value of extending social protection to migrant workers. They recognise the demographic challenges the country faces and the need to integrate foreign workers into the national social security system. Employers also see the benefits of a more inclusive social security system. It simplifies administrative processes and creates a more competitive and fair labour market.
What are the next steps for PERKESO and the ILO?
Possible next steps involve further extension of social protection coverage and reforming existing systems. We are particularly focused on support to stakeholders in introducing new benefit branches, such as maternity and family benefits, and reforming the pension system where the adequacy of benefits is a challenge. Current retirement benefits are payable in lump sum form and the ILO has proposed different reform options which would ensure adequacy of benefits and financial sustainability over the long term.
We will also continue to support work on bilateral agreements for the portability of social security benefits, addressing concerns about workers who return to their home countries. This ensures that workers and their families can access their benefits regardless of where they are. Additionally, we are undertaking analysis for a potential future ratification of ILO Convention 102, which sets minimum standards for social security. This would recognise the significant positive steps already taken in Malaysia to strengthen its social protection system and encourage future efforts in this direction. The ILO commends Malaysia for these efforts.
