Copyright © 2018 Authors. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. International Journal of Engineering & Technology, 7 (4.33) (2018) 83-92 International Journal of Engineering & Technology Website: www.sciencepubco.com/index.php/IJET Research paper Optimising Contribution Rate for SOCSO’s Invalidity Pension Scheme: Actuarial Present Value (APV) Mohd Zaki Awang Chek*, Isma Liana Ismail, Nur Faezah Jamal Faculty of Computer and Mathematical Sciences (FSKM), Universiti Teknologi MARA, Perak Branch, Tapah Campus, Tapah Road, 35400 Perak, Malaysia *Corresponding author E-mail: mohdz220@perak.uitm.edu.my Abstract This study proposes the optimization of the contribution rate for Social Security Organization (SOCSO)’s Invalidity Pension Scheme (IPS). This study aims to statistically analyses the current situation of the contribution fund collection and the claim benefits payment under SOCSO’s IPS. It seeks to develop an actuarial formulation based on the benefits coverage from SOCSO’s IPS. It attempts to de- termine an optimal contribution rate to support the benefits provided under SOCSO’s IPS using an actuarial approach. It proposes an appropriate contribution rate to be implemented by SOCSO. 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 soon to ensure that all payments of claims are sufficiently covered. Based on the 9th Actuarial Valuation Report issued by the International Labour Organization (ILO), recent statistics show that immediate revision of contribution rate is necessary to achieve the minimum loss ratio (max 20%) in SOCSO’s IPS funding systems. In this study, the Actu- arial Present Value Approach is applied to all benefits under SOCSO’s IPS. SOCSO data from 1985 until 2014 are used in this s tudy. 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 optimizing 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 optimize 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 p rotection is provided to the nation’s workforce. Keywords: APV; Contribution Rate; Invalidity Pension Scheme; Optimisation; SOCSO. 1. Introduction Every family desires to have a comfortable, trouble-free lifestyle, protected and shielded from any unforeseen events and accidents. Typically, families spend millions of dollars to protect themselves against the risk of calamities or accidents occurring [1]. Social security is defined as the protection which society provides for its members, through a series of public measures, against eco- nomic and social distress that would be caused by stoppage or substantial reduction of earnings resulting from sickness, materni- ty, employment injury, unemployment, invalidity, old age and death, and the provision of subsidies for families with children [2]. In [3] reported that nearly 90% of countries worldwide practice social security measures. Employees are exposed to accidents within the workplace. Each job has its own unique risks and exposure to hazards. Risk man- agement involves creating awareness of uncertainty, qualifying the risks, managing the controllable risks, and minimising the impact of uncontrollable risks by way of risk allocation [4]. In practical terms, this concept can be interpreted as economic protection against losses that may arise on the assets and earnings of employers or employees. For most of the people, insurance is the most practical method to mitigate these risks. Employees who are currently employed are usually covered by their home coun- try’s social insurance. The first broad system of social insurance was created by the Government of Germany under Chancellor Bismarck between 1883 and 1889. As far back as the 1850s, sev- eral German states helped local governments to set up sickness funds to which workmen could be compelled to contribute [5]. Fig. Error! No text of specified style in document.: Statistics Contribution and Distribution of SOCSO, 2002-2014 Figure 1 shows the total amount of contribution collected against benefits and claim payouts made by SOCSO from 2002 to 2013. SOCSO provides compensation to the eligible employees who receive lifetime pensions due to occupational uncertainties. This is one of the factors which has contributed to the drop in the SOCSO fund since 2008. Furthermore, the Minister also stated that