You see it on your payslip, but what does Perkeso really do?

 FMT takes a closer look at what Perkeso contributions pay for, how they benefit workers, and why they matter.

For someone earning the minimum wage of RM1,700, the Perkeso deduction amounts to RM8.50 per month, or 0.5% of wages, while the employer contributes RM29.75, equivalent to 1.75%.

PETALING JAYA:

For many Malaysian workers, the Social Security Organisation (Perkeso) contribution appears as just another deduction on their payslip, reducing their take-home pay.

For a worker earning the minimum wage of RM1,700, the employee contributes RM8.50 per month (0.5% of wages) to Perkeso, plus RM3.40 (0.2%) to the Employment Insurance System (EIS). The employer, meanwhile, contributes RM29.75 (1.75%) to Perkeso and an additional RM3.40 (0.2%) to the EIS.

For lower-income workers, even small deductions can be felt immediately, as a few ringgit can make a difference when budgets are already tight.

That raises a natural question – what exactly are these contributions for, and how do they benefit workers? FMT takes a closer look.

The protection workers don’t see

Zharif Luqman Hashim, an economist at the Centre for Future Labour Market Studies, said Perkeso exists to ensure all workers have basic protection when something goes wrong.

Its protection goes beyond workplace accidents. Through the Employment Injury Scheme, it covers workplace and commuting injuries; through the Invalidity Scheme, it provides 24-hour protection for disability or death; and through the EIS, it offers income support and job-search assistance to workers who lose their jobs.

The system also extends into areas such as rehabilitation, prosthetics, dialysis, and return-to-work programmes.

Zharif said unlike private insurance, which is voluntary and priced based on individual risk, Perkeso contributions are compulsory, pooled, and tied to wages instead of health status. Thus, workers in lower-income jobs or higher-risk occupations are not excluded from protection.

This is particularly relevant in sectors where risk is inherent and accidents are more common in manual jobs, which are often held by lower-wage workers.

“Covering medical bills alone does not solve the real problem most families face after an injury or illness, which is the loss of income and work capacity. Perkeso goes further by providing income replacement alongside rehabilitation and return-to-work support,” Zharif said.

Why private insurance is not a substitute

Zharif pointed out that Perkeso and private insurance play very different roles, with private insurance usually coming in later to provide additional medical benefits or higher coverage for those who can afford it.

Private insurance is also typically underwritten, meaning coverage and pricing depend on age, health, and risk factors.

Malaysia Institute of Economic Research senior fellow Azizul Amiludin said that under a standard actuarial risk assessment, insurance premiums for these workers would be priced higher, effectively placing coverage out of reach if left to individual purchase.

An ageing workforce, and rising pressure on protection systems

The country’s population aged 65 and above rose from 7.6% in 2024 to 8% in 2025 and is expected to keep increasing, bringing changes in the nature of risk as the population ages.

Perkeso’s Invalidity Scheme, which provides 24-hour coverage for disability or death from any cause, is likely to play a larger role in this context. At the same time, social insurance systems will need to evolve alongside demographic change.

“As the average age of the workforce rises, policies that encourage older workers to remain economically active should be considered.”

“However, the types of jobs available to older workers must be aligned with their experience and skills. They are less likely to be suited to physically demanding roles, such as manual labour,” Azizul said.

He also pointed out that Perkeso alone could not provide coverage for workers facing age discrimination or chronic diseases. “If the government intends to extend the retirement age, such forms of coverage should be considered and potentially advocated by Perkeso,” he said.

Azizul also warned that rising medical costs, an ageing population, and a potentially shrinking contributor base could put pressure on the system over time, suggesting that contribution rates and coverage might need periodic review.

The contribution rate has remained at 2.25% since Perkeso’s inception, with sustainability maintained instead by raising the wage ceiling from RM5,000 to RM6,000 rather than increasing contributions.

Cost or collective investment?

Zharif said Perkeso should be understood as an investment in people rather than a cost. “By protecting workers when they are injured, disabled, or temporarily unable to work, the system helps preserve skills, experience, and labour force participation.”

Azizul said that without a system such as Perkeso, the burden would not disappear but be shifted elsewhere.

“Healthcare costs would likely rise further, particularly in the context of an ageing population and the social toll would be significant. Families would bear a greater responsibility in caring for debilitated members, often at the expense of their own economic participation and well-being.

“Public institutions, including the welfare system, would also face increased strain. These are real costs to society. Social insurance should not be seen merely as an individual expense, but as a collective investment in social stability and economic resilience,” he said. - FMT