New Pension Policy for Foreign Workers

Starting in the last quarter of this year, Malaysia will enforce a new regulation requiring foreign workers to contribute 2% of their salaries to the national pension scheme, Employees Provident Fund. This initiative aims to provide foreign workers with dividends on their contributions, which they can withdraw upon permanently returning to their home countries.

Contribution Rates and Benefits

The new policy sets a lower contribution rate for foreign workers and their employers compared to Malaysian workers, who contribute 11% and 12-13% respectively. Previously, foreign workers had the option to voluntarily contribute 11% of their salaries, with employers contributing a minimal MYR5 (US$1.13) monthly. This change seeks to balance the employment landscape, making local hiring more appealing and reducing remittance outflows from Malaysia.

Impact on Employment and Economy

Senator Datuk Seri Amir highlighted the importance of this policy in preventing the imbalance between hiring foreign and local workers. As of December last year, only 0.9% of foreign workers in Malaysia actively contributed to the national pension fund. The mandatory contributions are expected to create a fairer labor market, encourage local hiring, and reduce reliance on foreign workers over time. Additionally, this policy could help curb the number of undocumented foreign workers, as only legally registered workers would be eligible to contribute.

Economic Implications

Professor Emeritus Barjoyai Bardai of Universiti Tun Abdul Razak noted that mandatory contributions could mitigate the impact of remittances sent by foreign workers to their home countries, potentially stabilizing Malaysia’s foreign exchange rate. In 2023, outward remittances from foreign workers totaled MYR34.2 billion (US$7.7 billion), highlighting the significant economic impact of these contributions.