Invalidity Pensions

Invalidity Pension or more commonly known to the public as “pencen ilat” is a benefit conferred to employees who have suffered permanent disability or a morbid condition during the course of their employment, which has severely impaired their capacity to continue working. In such a situation, the employer cannot continue to employ the employee, and the employee if eligible can claim for invalidity pension from Social Security Organization (SOCSO/PERKESO).

Matters concerning invalidity are covered in the Employees’ Social Security Act 1969 (“ESSA”) and the Employees’ Social Security Rules 1971.

Most employees do not know whether they qualify for such benefits. We’ve set out below a general guide on invalidity pensions.

Who qualifies for Invalidity Pension?

Section 16 of ESSA states that an individual is deemed to have suffered from invalidity if he is incapable of engaging in any substantial gainful activity. Such is defined to encompass the following:-

  • Someone suffering a morbid condition of permanent nature;
  • As a result of the disability or condition, he is incapable of performing at least one third of the customary work assigned to an ordinary worker; and
  • There had been no improvement on his invalidity despite having psychical or vocational rehabilitation.

The employee must also be certified as invalid by the Medical Board or Appellate Medical Board.

An employee applying for invalidity pension must also not have reached mandatory retirement age (60) upon filing an application.

In short, an employee is deemed to be invalid under the law if he suffers from a disability or condition which prevents him from carrying out his normal duties or tasks as an employee and the employee’s condition had not improved despite being given treatment. These individuals qualify for invalidity pension under the law.

How much is given under the Invalidity Pension?

The pension amount one receives differs depending on whether they have completed a full or reduced qualifying period.  Sec. 17 of ESSA defined them as follows:-

  • Full Qualifying Period

The employee’s monthly contribution to SOCSO has been paid for at least 24 months within a period of 40 consecutive months prior to the month in which their invalidity notice is received by SOCSO

or

Their monthly contribution has been paid for not less than 2/3 of the complete months comprised between the date when contribution first became payable and the Invalidity Notice is received by SOCSO (the total number of monthly contributions that has been paid within that period must be at least 24 months).

  • Reduced Qualifying Period

The employee’s monthly contributions to SOCSO have been paid for less than 1/3 of the number of completed months (comprised of the period between the date when contribution first become payable and the Invalidity Notice is received by SOCSO). The total number of monthly contributions paid during the period must be at least 24 months.

Depending on which category an employee falls in, Section 20 of the ESSA provides that the following invalidity pensions will be given:

  • Employees who have completed Full Qualifying Period

Employees shall be given 50% of his average assumed monthly wages, increased by 1% for every 12 months contributions paid in excess of the first 24 months during the period between the date when contributions first became payable and the date where he submits a notice of invalidity. However, the amount may not exceed 65% of his average assumed monthly wages.

An example:

Employee joins the scheme on 1 January 2010

Date of invalidity notice received is on 1 January 2015

Number of monthly contributions from January 2010 to December 2014:  48 months

Employee is considered to have completed a “full qualifying period” because his contribution has been paid for at least 24 months within the period of 40 consecutive months prior to the month in which his invalidity notice was received.

As he has paid 48 months of contribution, he is entitled to an additional 2% of benefits (1% for every 12 months contribution paid in excess of the first 24 months). As such, he will receive 52% of his average assumed monthly wages as an invalidity pension.

  • Employees who have completed Reduced Qualifying Period

A basic monthly pension equals to 50% of his average assumed monthly wages.

Employees who suffer permanent disability or conditions which render them unable to carry out their jobs, may have their employment contracts deemed frustrated on medical grounds. Although it is a sad affair, the law does offer some protection to these individuals through the invalidity pension scheme.

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About the author: Amirul Izzat Hasri is an associate in the dispute resolution practice group at Donovan & Ho. He has experience in a diverse area of practice, including general civil and corporate litigation, judicial reviews, land related matters, defamation, debt recovery, and shareholder and boardroom disputes. He has also appeared in Industrial Court proceedings, having represented both employers and employees in unfair dismissal claims.

Donovan & Ho is a law firm in Kuala Lumpur, Malaysia. Our practice areas include employment law, dispute resolution (litigation and arbitration), corporate and tax advisory, family law and real estate/conveyancing. Have a query? Contact us.

 

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