This study proposes the determining of the contribution rate for Social Security Organisation (SOCSO)’s Invalidity Pension Scheme (IPS).
14:00 - 16:00
Dr Mohd Zaki Awang Check (Center for Actuarial Studies, FSKM, UiTM Perak Branch, Tapah Campus, Perak, Malaysia)
Lectures, talks and seminars
Mathematical Sciences, Department of
The objective of this study is to determine an optimal contribution rate to support the benefits provided under SOCSO’s IPS using an actuarial approach. Currently, the contribution rate for SOCSO’s IPS is 1%, which is shared equally between employer and employee. This contribution rate is directly deducted from the employee’s monthly gross salary. This contribution rate needs to be adjusted upwards by SOCSO in the near future to ensure that all payments of claims are sufficiently covered. Based on the 9th Actuarial Valuation Report issued by the International Labour Organisation (ILO), recent statistics show that immediate revision of contribution rate is necessary in order to achieve the minimum loss ratio (max 20%) in SOCSO’s IPS funding systems.
In this study, the Actuarial Present Value Approach is applied to all benefits under SOCSO’s IPS. SOCSO data from 1985 until 2014 are used in this study. Seven assumptions are made in this study, namely mortality rate, salary ceiling, interest rate, retirement age, increment salary rate, age entry, and salary entry. By optimising the worst-case scenario (single simulation), this study has found that the optimal contribution rate is 2.2% rather than the current 1%. This can be attributed to the fact that since 1969, many changes have occurred in the workplace, working conditions are different and many new jobs have been created. Therefore, an Actuarial Present Value Approach with regards to actuarial modeling was conducted to optimise SOCSO’s IPS contribution rate.
In conclusion, an optimal contribution rate of 2.2% should be introduced and implemented in the future as part of the efforts to reduce society’s burden whilst ensuring that adequate protection is provided to the nation’s workforce.