Impact Of An Ageing Population On Pension Expenditure Using Autoregressive Distributed Lag Model

Many countries including Malaysia are facing a rapidly ageing population. According to Malaysian Healthy Ageing Society (MHAS), Malaysia is also inevitably moving towards ageing population as those aged 60 years and above have grown from 6.2% in 2000 and is expected to hit 13.6% by 2030. Due to the inevitable ageing problem, it shows that pension expenditure has been tripled in the past ten years and thus an ageing population will cause pension expenditures in national budget to rise. Therefore, this study aims to forecast the Malaysian ageing population and analyse the impact of ageing population on Malaysian pension expenditure. The study used the Cohort Component Method to forecast the trend of ageing population, while Autoregressive Distributed Lag Model to analyse the impact of ageing population on pension expenditure. The component of old age dependency ratio, life expectancy, fertility rate, gross saving, unemployment rate and gross domestic product are used as ageing variables against pension expenditure. The results showed that Malaysia is anticipated to experience ageing population in future and life expectancy is the most significant variable that affects pension expenditure.