Analysis of Mortality Improvement on the Pension Cost Due to Aging Population

Abstract

Aging is a good indicator in demographic and health areas as the lifespan
of the elderly population increases. Based on the government’s Economic Outlook 2019,
it was found that an aging population would increase the government pension payments
as the pensioners and their beneficiaries have longer life expectancy. Due to mortality
rates decreasing over time, the life expectancy tends to increase in the future. The
aims of this study are to forecast the mortality rates in the years 2020 and 2025 using
the Heligman-Pollard model and then analyse the effect of mortality improvement on
the pension cost (annuity factor) for the Malaysian population. However, this study
only focuses on estimating the annuity factor using life annuities through the forecasted
mortality rates. The findings indicated that the pension cost is expected to increase if
the life expectancy of the Malaysian population increases due to the aging population in
the near future. Thus, to reduce pension costs and help the pensioners from insufficient
financial income, the government needs to consider an extension of the retirement age in
future.